In praise of decentralisation
Monday 28 September 2015
Decentralisation is supposedly one of the core characteristics of crypto - but in reality it’s an increasingly scarce property.
Bitcoin was the world’s first decentralised online currency. Creating a form of money that operated peer-to-peer over the internet was no mean feat, and brought with it the ability to free money from the control of banks and governments.
Read also: Is bitcoin forked?
That’s a really huge deal. For the first time since buying and selling meant handing circular chunks of metal to each other, money can be free from interference and intervention from third parties. No one to screw with the money supply. No one to reverse transactions. No one to dictate fees or the terms of who you can and can’t trade with. That’s the freedom that decentralised cash brings.
Crypto is supposed to be decentralised. So where are we heading?
Conversely, centralisation - particularly in crypto - brings serious threats (particularly the threat of a 51% attack, in which someone who wields a lot of power, like the owner of a mining pool, can rewrite the transaction ledger). So it’s odd that so many cryptos today are, in some form or other, centralised.
Bitcoin, the granddaddy, started out as truly decentralised, CPU-mined by enthusiasts on their home computers. However, increasing difficulty and the demands of the blockchain on bandwidth and disk space risk centralising it among a small number of poweful miners, and pools.
Ripple has a different approach to consensus, and can’t be considered decentralised due to the control exerted by the company behind it - and the huge proportion of Ripple coins it holds.
Litecoin is arguably better, but distribution is poor and although its Scrypt proof-of-work is an improvement on bitcoin’s SHA256, it is still vulnerable to centralisation through mining.
Ethereum is corporate crypto, led by a small number of business people and driven by business interests.
And so it goes on. The top #10 list by market cap is full of cryptos that are effectively centralised or risk being centralised for one reason or another - around corporations (Ripple, Stellar, Ethereum), proof-of-work, poor distribution or other quirks of their protocols.
In most cases, these do not represent anything like the full centralisation of the banking system, and it’s unlikely that - at this point - any harm will come of it. What’s interesting, though, is the direction of travel, particularly in the continuing emphasis on proof-of-work mining to secure a currency. This inevitably results in a degree of centralisation, as smaller players cannot compete.
Hardline bitcoiners rail against the centralisation of crypto (most bitterly in the XT blocksize debate). But given that one of the greatest advantages of crypto is its freedom from control by any party, perhaps we should all pay a little more attention.
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