Decentralization is the vehicle for economic freedom and the standard cryptocurrencies aim for.
This important feature allows the blockchain network to operate unhindered by government bans or regulations.
Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending.
While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model.
With the possibility of reversal, the need for trust spreads.
-Satoshi Nakamoto, "Bitcoin: A Peer-to-Peer Electronic Cash System" (source)
The keyword is trust. Trust may have worked for a while since there wasn't any other system available, but was always the failure of the bank payment networks.
Decentralization should be safeguarded and promoted for a blockchain to succeed. Otherwise, the examples are weak blockchain networks that are often 51% attacked, or centralized blockchains as the IBM blockchain, offering low utility.
The failures of Trust in Payments & Finance
Decentralized networks are offering a trustless financial environment expanding into all financial aspects of our economies, excluding intermediaries, and the various problems of the legacy financial system. Decentralized networks are also permissionless. Everyone can build on top of them.
With the traditional financial system, we have to trust an entity like a bank to deliver its promises, keep our money secure in our bank accounts, and execute our transactions upon our demand.
Moreover, with the current system we also have to:
trust the banks will not go bankrupt,
trust the government will not default on its debt and seize funds from our bank accounts to cover for State liabilities,
trust our cash will not devalue over time (inflation),
trust every single bank employee they won't just empty our account stealing our funds.
That is simply too much to ask and this legacy system is now obsolete.
Cryptocurrency removes the need for trust.
Decentralization of Constituencies
To secure the network and offer true P2P financial transactions without the use of intermediaries and trust, Nakamoto incorporated a proof-of-work (PoW) hash-based distributed ledger that follows the longest chain logic.
Total decentralization is probably only a theory. Still, we can discuss levels of decentralization in any particular network. Decentralization comes in different forms within a network and the concentration of power can be achieved far from just the mining scope and PoW.
While we examine the decentralization of a network mostly within the mining factor, there are examples of an entity taking control and manipulating the rest of constituencies.
For example, Bitcoin (BTC) suffers from development centralization, since all proposals require the approval of a certain private company, Blockstream.
Such events create a loss of credibility for the decentralization process and bring into light fundamental flaws of the network’s governance.
Decentralized Development in Bitcoin Cash
Bitcoin Cash encountered such an attempt (with BCHAB) that demanded increased control for monetary gains by a certain small but important part of the community, although eventually consensus prevailed and excluded it.
In retrospect, the proposal of the BCHABC side just looks like extortion and was never going to be accepted. Financially it may have profited the side of BCHABC in the short term, although the long-term viability of the rebranded eCash is not realistic.
Bitcoin Cash has various development teams, unlike Bitcoin Core, which is the decisive developer party, executing developments (mostly stagnating Bitcoin) under Blockstream's payroll.
Bitcoin Cash did not succumb to pressure in another attempt to damage the BCH network by BSV in 2018. Although, some important elements prior working for Bitcoin Cash now contribute to eCash and BSV instead.
Amendment proposal to the whitepaper (2016)
In Bitcoin BTC, the whitepaper today is torn into pieces. So much that the CEO of bitcoin.org asked for an amendment of the whitepaper:
I believe it doesn't do a good job anymore of giving people a firm understanding of Bitcoin (at least the modern version).
-Cobra, (source: Github: Amendments to the Bitcoin paper #1325)
It wasn't just one person with influence proposing changes to Bitcoin's whitepaper.
We can easily find the motives behind such a proposal and who was actually behind it by just reading the comments. And it isn't unexpected that Gregory Maxwell and Theymos were involved.
Bitcoin Core devs under Blockstream's payroll justified and promoted this proposal. They failed since the circumstances were different in 2016, although if such a proposal is revived today, chances suggest it will find overwhelming support, since BTC is even more centralized today in development terms.
Consensus
We often find a (power) struggle in top blockchain networks. Even the most decentralized blockchain networks (BTC, Bitcoin Cash, Ethereum, Litecoin) are not completely autonomous entities but governed by their respective communities. The governance model is consensus.
Consensus lives at the core of decentralized blockchains governance. The support in network changes will meet the objectives of the overwhelming majority of the network constituencies.
Constituencies
Bitcoin is not just miners, (as Andreas Antonopoulos explained in some of his speeches), it is based on various constituencies that operate and provide additional value to the network.
The decision process of Bitcoin is a consensus-based mechanism.
This requires the overwhelming part of the Bitcoin constituencies to agree on code changes. These constituencies are:
The miners
The "core" developers
The exchanges (running nodes)
The developers building on top of the network (wallets, sidechains, etc.)
The end-user
Sidechains
The BTC version of Bitcoin also has private and public sidechains as Liquid and LN but also EVM compatible sidechains (RKS network) that enable smart contracts and tokenization.
Bitcoin (BTC), Bitcoin Cash, Ethereum, and most blockchains are open-source permissionless networks. Anyone can build on top of these networks, and any developments do not require consensus. Although the approval of the communities is important to long-term success. Many Ethereum sidechains also follow the same logic, although all of them required a different ETH native token for gas. Ethereum keeps losing
These sidechains are private attempts to build a second layer on top of the first, aiming to cover certain market needs. They can be private centralized networks or decentralized with PoW or PoS forms of cryptographic proof.
Decentralization in development
Decentralization is mostly in terms of mining, however, there are some more crucial elements not often discussed.
As with the example of Blockstream, we understand now how certain mechanisms apply in favor of promoting private interests by stalling innovation and not proceeding with scalability developments.
Decentralization in development is equally important, especially when there is a threat of private-funded entities taking control and pushing a certain agenda within main and centralized communication media.
Exchanges
The cryptocurrency market is probably the most free-market in the world, although often heavily manipulated, with bubbles forming in some assets and others suppressed at low levels.
In 2013 the trading volumes were centralized in one only exchange, the now-defunct MtGox (~70% of trading volumes). Centralized cryptocurrency exchanges are the entry point in the cryptocurrency market.
The moment MtGox collapsed price of Bitcoin entered a two-year-long bear market and BTC was close to becoming a failed experiment.
The cryptocurrency market is probably the most free-market in the world, although often heavily manipulated, with bubbles forming in some assets and others suppressed at low levels.
In 2013 the trading volumes were centralized in one only exchange, the now-defunct MtGox (~70% of trading volumes). Centralized cryptocurrency exchanges are the entry point in the cryptocurrency market.
The moment MtGox collapsed price of Bitcoin entered a two-year-long bear market and BTC was close to becoming a failed experiment.
Exchanges are also running full nodes and may mine cryptocurrencies. Although they are a different category having a certain role.
In Conclusion
The participants of a decentralized network are interacting and either adopting or refusing changes to the code.
The consumers of a product or the users of a network will simply stop using or consuming it if they don’t find value in it any longer. If a product contains no desired features or misleads the public on its properties, then the consumers will simply stop using it.
Developments have to do with the end product offered to users.
A competitive payments network will increase the userbase and eventually the value of the underlying asset.
Bitcoin under Blockstream was maliciously hijacked and progress in BTC developments has stalled. Blockstream is often advertising the fact that Bitcoin (BTC) can’t be used as a currency and the solution of this private entity was the LN and Liquid sidechains it produces. However, a sidechain is not a solution to scalability, but a second problem.
Today, Bitcoin Cash is the definition of Bitcoin according to the whitepaper and continues where BTC stopped.
A P2P electronic cash network with a robust and decentralized blockchain in all parts forming its financial network, secured by the second top hashrate (~1.5Exahash).
Images:
Lead Image Unsplash (modified)
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SLP and SmartBCH Wallets:
SLP: simpleledger:qp77an8yy98kgarhgmhurvmcrxslth0v9qgft6ypqk
SmartBCH: 0x2c09bc07354bad5b5c04b3661148d50a5fc087bc
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