Crypto unchained - chapter 9

Chapter 9:

Crypto’s Decentralisation Dilemma

Born to decentralise the world, Bitcoin lit a spark. But somewhere along the chain, control crept back in.

Bitcoin was introduced in late 2008 and presented as a peer-to-peer payment system. The promise then was a distributed network in which no single entity can unilaterally exercise control, but rather the network as a whole which democratically validates transactions and manages governance. This breakthrough was only made possible with the introduction of blockchain technology. The blockchain technology is nothing but immutable storage, but combined with cryptography and well-designed economic incentives, providing the fundamental building block of any crypto-asset.

Since the introduction of Bitcoin, the crypto-asset ecosystem has significantly evolved. First, with the introduction of crypto-assets services such as Filecoin, providing cloud storage and other third party distributed services. Next, the introduction of smart contracts further extended the realm of possibilities in emerging asset class by allowing people to design their own, customizable smart contracts. This straightforward automation of interactions has enabled a whole new dimension of the ecosystem: DApps powered by smart contracts.

While DApps provide countless opportunities for users and developers, which is also characteristic of an ongoing trend in the crypto world; centralisation. By shifting from a distributed blockchain — and with it, a well-functioning decentralized governance — to smart contracts, which often imply a more centralized form of control, we gradually move away from the original spirit in which Bitcoin was created. Bitcoin was at the core of a peer-to-peer vision of the world in which no single entity can unilaterally decide. The centralisation of smart contracts stands at the antipode of this philosophy.

Unfortunately, centralization is present in many parts of the ecosystem. We see it in centralized exchanges, stablecoins, smart contract platforms, and mining pools. In other words, while the technology theoretically supports a decentralized world, users and consumers — knowingly or not — tend to gravitate toward centralisation. There appears to be a fundamental inability to fully grasp what a truly distributed network entails. Since the creation of Bitcoin, nearly every major innovation in the space has been a step back toward centralization.

In short :

Crypto-assets represent an emerging asset class. This innovative space is full of both opportunities and risks. Much of the confusion stems from a lack of understanding of the core philosophy behind distributed networks: enabling large-scale trust without relying on central authority. Currently, the absence of regulation combined to limited awareness of risks creates a highly volatile environment. A comprehensive understanding may help users navigate the ecosystem.

Today, we stand at the dawn of a new era in digital technology. No one can say for certain where this journey will lead, but it’s almost certain it will take us to places we can’t yet imagine—much like the internet did two decades ago.

With contributions from Emilie Wastin (editorial), Mehdi Goumiri (sound) and Kevin Erkeletyan (editorial & creative direction).
With the support of Studio CAD.

Into the wild

A new world

Money rules the world

From Wallets to Smart Contracts

The rise of DApps

Heads or tails, Coins & Tokens

Risks and scams

Outlook

Crypto’s Decentralization Dilemma

Crypto’s Decentralisation Dilemma

Stay tuned