Is Bitcoin Truly 'Decentralized'
‘Decentralized’ is one word that is almost unescapable when talking about Bitcoin & other cryptocurrencies. That is one true reason, which brought disgruntled, unhappy people under one roof. People who were fed up with governments of the world printing currency at their own whims & fancies, sometimes to save greedy bankrupt banks (case in point 2008 Financial Crisis) and most often for their own spending. That had a negative influence on the economies of those countries, increased inflation and made lives of the common tax paying people harder. This discontent was timely and led to birth of a revolutionary world currency and ‘store of value’ by an anonymous Satoshi Nakamoto, now known as ‘Bitcoin’. His vision was decentralization of everything known to us and what a grand vision it was!
However, recently owing to many factors that I will discuss below, a question that has started being raised recently in many cryptographic circles is – Is Bitcoin remained a truly ‘decentralized’ currency. I will try to dissect this question and try to answer it with a few of my arguments.
Cryptocurrency Mining – not everyone’s cup of tea anymore
Many years ago, say around 2010, even mining with a CPU on a desktop was fairly profitable, because of few miners and fairly low difficulty rates, even in a country with expensive electricity. Not anymore.
China has emerged as a superpower in the last few years with one of the highest GDP growth rates in the world. It has also been flexing its muscle in the cryptographic arena for the last couple of years. More than 70% of Bitcoins are mined in China. China not only produces most of mining equipment, but also huge mining farms are located there. It is home to four of the five largest Bitcoin mining pools. For Mining to be centralized in one country, the degree of political threat to the network is huge and that should be a huge cause of worry for our cryptographic community.
Birth of Cryptocurrency Exchanges
Isn’t the whole idea of centralized exchanges killing the point. Bitcoin and other cryptocurrencies were envisioned as a peer-to-peer electronic currency without the use of exchanges. But that remains a dream till now. However, that is not a distant one. We can get rid of exchanges completely, through Atomic swaps alone. Cardano is one cryptocurrency, that enables atomic swaps. I have written about Cardano in one of my earlier posts. You can read it here:
https://steemit.com/cryptocurrency/@cryptogem/cardano-could-it-be-an-ethereum-slayer
Exchanges offer services for buying and selling these cryptocurrencies in return for huge commissions. The volume in these exchanges is so humongous, that the money generated can feed a poor country for a day! Aren’t these exchanges like Banks for cryptocurrencies with their own wallets for storage, I ask? You decide! But the fact remains that we need to do away with these exchanges as soon as possible.
Despite all the above factors, I will still say that Bitcoin is truly a ‘Decentralized’ currency. If you are baffled and want to know why I say so, read on….
One of the main distinctions between traditional fiat currency and cryptocurrency is that, when dealing in fiat, you mandatorily must go through third party services such as banks. For example, when someone wants to transfer money, it necessarily must be cleared by banks, because banks hold your money, albeit in your own account. In the case of cryptocurrencies, as I said above, there are exchanges, through which you may or may not interact, however there is no compulsion to do so. In case of cryptocurrency transactions, if someone wants to transfer money, all that is required is deposit address of the receiver. There is complete anonymity and privacy.
With traditional fiat money, it is centralized, and the Government controls its supply in the economy. Only government controls money and has the right to issue it. Try to invent your own money and you will be punished by the law. Whereas, you can invent your own digital currency whenever you want. However, that’s one grouse I have with these damn scammy ICO’s, which don’t have any use case, but are just floated to dupe people of their hard-earned money. Not only that, they also give real, legit and genuine cryptocurrencies a bad name! (With my mini tirade out of the way, moving on..)
Cryptocurrencies are the key to your financial freedom, removing the obstacle of banking bureaucracy. Even electronic payments can’t give this freedom — these banks, for example, can freeze your account any time it has any suspicions. Nobody can ever freeze or forbid you access to your own Bitcoin wallet. You don’t leave any personal information while using cryptocurrency. You are the only one, who has access to your funds.