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Why decentralisation matters

Why decentralisation matters

I sometimes get emails questioning why it matters that a cryptoasset like Ripple is centralised. It is a good question. One of the biggest issues facing the sector is the inability of cryptoassets to scale to levels necessary for mass adoption, an issue directly caused by the desire to create decentralised cryptoassets. But why does it matter? Who cares?

A lot of people investing now won’t care (or likely even know) about the benefits of decentralisation. But people everywhere should care, because this is what makes blockchain and ledger technology so special.

The benefits of decentralisation to blockchain and ledger technology are numerous.

When Satoshi Nakamoto solved the double spend issue, he ushered in the possibility of no longer having to use a trusted third party to guarantee your transaction. No longer do you have to use a bank to process your payment to another party. Blockchain solutions will soon cut out estate agents and solicitors from buying and selling houses. Being able to avoid unneeded third parties like this does not just save on fees, it also removes the opaque nature of these institutions. PayPal or your bank can suspend your account at any point if they don’t like something they see. No-one can take suspend your Bitcoin wallet.

A decentralised network also reduces the chance of a government being able to shut it down. Even if China was to seize all of the Bitcoin miners in the company tomorrow, the network would continue to run. New miners would spring up elsewhere or, if they launched a 51%+ attack, other networks would take their place. No-one can just ‘turn it off’.

It is also censorship resistance. There are numerous countries worldwide in which citizens are censored, either in what they write or what they buy. Blockchain can not magically solve these issues – but decentralised secure networks can help people circumvent them. Secure messaging apps over blockchain will have no company to prosecute, no executives to arrest and force to implement a backdoor.  

A decentralised system reduces the chance of network participants colluding. There is no CEO. There are no shareholders or government to please. All that matters is the functioning of the network and the continued flow of rewards.

Blockchains today are not 100% decentralised. There are many issues with creeping centralisation such as the consolidation of mining groups. Ethereum forked itself after the Dao hack to recover lost money. Cryptoassets remain concentrated in a relatively small number of hands. Nearly all the major blockchain and DAG solutions run master nodes or variants thereof, increasing the centralisation of the system.

Decentralisation is key to the design of cryptoassets. It matters because of all the intermediaries taking fees for doing very little. It matters because oligarchic technology firms increasingly dominate the online space. It matters because of the many countries worldwide where people are censored from expressing their thoughts or moving their money how they see fit. It matters because creating a system that can’t be shut down by government force is paramount. It matters because the genius of Bitcoin was that it was an asset that could not be altered without achieving consensus by self-interested groups.

The Bitcoin whitepaper was called “Bitcoin: A peer-to-peer electronic cash system”. The first line of the abstract stated that Bitcoin was designed to avoid people from having to go through financial institutions. The beauty of Bitcoin lies in its elegant solution to a difficult problem. In eight pages Satoshi Nakamoto outlined a means to circumvent centralised institutions. This is why decentralisation matters and should never be compromised on.

Part 1: Why Bitcoin could face a slow heat death

Part 1: Why Bitcoin could face a slow heat death

A picture is worth a thousand words

A picture is worth a thousand words

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