Last week, we wrote about one of the first Associate projects — the association created to manage a cryptocurrency called Decen. Decen is a centralized cryptocurrency with a decentralized governance, designed for speed and scalability while still giving control to its users.
To some, Decen may seem like a contradiction since it’s centralized in one way and decentralized in another. Isn’t decentralization the whole point of crypto? Doesn’t a centralized cryptocurrency defeat the whole purpose?
It’s true that as blockchain and cryptocurrency have broken into the mainstream, the dominant narrative has become one in which decentralization is the gold standard for any and all crypto projects. It’s seen as a solution for corporate corruption, an escape from the consequences of fiscal mismanagement by national governments, and otherwise the answer to society’s financial and economic woes.
While there is real promise on these fronts, we shouldn’t throw the baby out with the bathwater. As time goes on, it looks more and more like cryptocurrency may not replace current systems as its more radical supporters might think, but rather integrate with and enhance them. There are responsible ways to integrate this technology with existing systems that are still innovative and advantageous, and introduce more consumers to the benefits of centralization in a safe, efficient manner as the technology continues to evolve. This way people can use, understand, and benefit from decentralization in a way that’s accessible — and won’t result in a hacked wallet.
Centralization Vs. Decentralization – Which is Best?
It’s important to understand that when it comes to centralization and decentralization, it’s not one or the other — these concepts exist on a spectrum
For example, EOS.IO, a blockchain protocol and smart contract platform established in 2017, can technically be described as “decentralized,” but it only has 21 active nodes on its network (for comparison, Bitcoin has over 10,000). So while EOS is technically “decentralized,” it’s not nearly as decentralized as Bitcoin and many other blockchains.
Consensus mechanisms can also affect the perceived centralization or decentralization of a network. There are many who criticize the Proof of Stake (PoS) model as one that will inevitably lead to centralization because it favors those who hold more tokens. The trade-off is that PoS is far less energy-intensive than Proof of Work (PoW), but it comes at the cost of pushing the project slightly closer to the “centralization” end of the spectrum.
The graphic below illustrates this nuance more generally. Even though there are multiple orange circles, indicating that organization isn’t completely centralized, it’s more centralized than an organization structured in the manner illustrated by the blue circles.
While some are quick to demonize centralization, the fact is it has certain advantages that are easy to take for granted — at least until they’re gone.
In a general sense, decentralized networks sacrifice speed to ensure security.
On a blockchain network, more nodes means more security. Adding nodes reduces possible points of failure and makes it more difficult for a bad actor to seize control of the network. But transactions must be validated by the entire network, so the larger it is, the longer each transaction takes.
Let’s take Bitcoin network for example. It currently has over 10,000 active nodes, making it nearly impossible to hack. But because every node must verify every transaction in a block before that block is officially added to the ledger, it becomes increasingly slower as it grows.
Naturally, issues with the speed of a network impact its ability to scale. In the past few years, there’s been significant focus on finding ways to solve the scaling issue faced by large blockchains like Bitcoin and Ethereum.
Centralized networks don’t have issues with network speed and scalability because there is only only entity that needs to verify and approve transactions in order to process them. And the difference is significant — Bitcoin processes around 7 transactions per second, while Visa processes around 1,700 transactions per second.
More generally, centralized companies can implement changes and adapt faster because decisions are made by fewer people and communicated down the structure of the organization. Of course, that shines light on one of the negatives of centralization: decisions are made by a few and enforced upon many, regardless of how they’re received.
Although decentralized networks sacrifice speed to maintain security without a central authority, there are issues around security that plague the space — some of which have had resulted in huge losses for individual investors. This causes many to see cryptocurrency as unreliable and unsafe, stifling the rate of mainstream adoption.
While blockchain has safeguards that prevent bad actors from compromising the network, hacked accounts and theft are all too common. While a centralized entity could simply identify the wrongful action and reverse the transaction, dealing with these issues is much more difficult in a decentralized infrastructure.
Centralized entities can also ban or otherwise prevent bad actors from using the network or platform. As we wrote about last week, many believe there are certain platforms that are taking this too far, removing users based on their political opinions or content that is arbitrarily deemed “dangerous.” But the ability to identify and remove users who are actually breaking the rules and compromising the integrity of the platform is ultimately a positive.
There is also no recourse for users who mismanage their funds. For example, if a user accidentally sends their cryptocurrency to the wrong address, the transaction is irreversible. There is nothing that can be done to get their funds back, no customer support line they can call for help.
Losing the password or seed phrase to a wallet is another costly mistake that too many crypto enthusiasts have made over the past decade or so. Stefan Thomas, a programmer from San Francisco, lost the password to his wallet in 2011 when Bitcoin was worth around $14. Today, the contents of that wallet are worth hundreds of millions of dollars. Unfortunately, without the password, there is no way of retrieving them.
These issues are easily managed within centralized infrastructures. Transactions can be reversed, passwords can be retrieved, and users have a resource to ask questions and make their case in the event contested claims. But that’s the sacrifice that heavy decentralization makes in order to keep the power out of the hands of too few people.
Transaction Fees (or lack thereof)
The Proof of Work (PoW) consensus mechanism used by blockchain networks like Bitcoin requires transaction fees to keep the network secure. These fees are used to pay the nodes that verify transactions. Miners, who receive “block rewards” for verifying transactions, are incentivized to act in accordance with the goals of the network because they benefit from doing so.
However, during times of heavy traffic, these transaction fees can skyrocket to heights that most would deem unreasonable. Look no further than the Ethereum network, which has received criticism for its high transaction fees (known on Ethereum as “gas fees”) during times of congestion. Users have complained of gas fees that are higher than the amount of ETH they are attempting to send, making the network inefficient to the point that it’s not even worth using — at least until the gas fees come down.
Right now, much of the current infrastructure that supports crypto is centralized, including the most popular exchanges such as Coinbase and Binance. Even many blockchain networks that claim to be decentralized are run by a small handfuls of individuals who make critical decisions about the future of the protocols they operate. Platforms that aren’t centralized are more susceptible to attacks and lost funds, and offer no support to users whose investments are compromised.
Centralization is not a bad thing in itself — it’s corruption and abuse of power that people have a problem with.
Decen was conceived with this in mind. It benefits from all the advantages of centralization — notably speed, scalability, and security — while removing the possibility that control of the protocol could be seized by any one individual or entity. Because governance is decentralized, Decen cannot be corrupted.
Adoption is here, and will only accelerate. As time passes, cryptocurrency, blockchain technology, and DAOs will integrate with our established platforms, and more and more people will be granted the autonomy to control their financial investments in a way that’s safe, accessible, and free of serious risk. The aim of Decen is to provide this middle ground to those who seek both simplicity and control of their finances.
Interested in learning more about Decen? Join today for free and get 10 DCN.