By SirGerardThe1st | SirGerardThe1st Grimoire | 9 minutes ago $0.03
Cryptocurrencies detractors’ main criticisms are their doubts in the “proclaimed to all winds” decentralization.
The truth is that in many cases they are right to doubt.But beware, because one thing is a “decentralized network” and another is a “distributed network”.While these last two are in opposition to the “centralized network”, the more distributed a decentralized network is, the more we will have won at the “decentralization” component of the networks´ trilemma.
You have to be very careful when talking about decentralization, because the long-awaited “non-dependence on centralized control”, in most cases, is still far from being achieved.But of course, we are at the beginning of what is probably the most disruptive technology that humanity has known throughout its history, and more and more talented developers around the world continue to investigate the mechanisms to be implemented in smart contracts to eliminate the controls of all kinds.
The truth is that decentralization and decentralized governance that is so fashionable and with which many projects boast as the great blazon, at the moment, is not very different from the functioning of a private corporation, which we could consider as a paradigm of centralization.It seems that, on DeFi platforms considered as paradigms of decentralization such as Compound or Maker, a small minority of major account holders further influences the whole system than the combined rest.
Here is a great contradiction that should be solved in the upcoming avant-garde projects.
The terrible thing about this situation would be that decentralized governance evolves to converge with forms of centralized governance and that this mixture is reached to be considered the optimal way of governance.
No, please.
First, let’s see some technology concepts and then see what happens in each of the coins in the order they are listed today on CoinGecko.
Centralized network.
In a centralized network, all nodes are peripheral, except the central one.
These nodes can only be communicated through the central node and its channels.If the central node suffers a fall, the rest of the nodes stop having flow.The centralized network is governed by the principle of knowledge, that is, the receiver knows the message of the issuer.If the centralizing node falls, the rupture and disappearance of the entire network fall obligation.
Decentralized network.
In a decentralized network there is no single central node, but a collective center of various connection regulatory ports.
When one of the regulatory nodes falls, the disconnection of one or more nodes of the network assembly is produced, but the network continues to work.That is, all the nodes are connected to each other without having to pass by one or several centers.
Distributed network.
Here we have a complete absence of an individual or collective center.The operation may seem somewhat chaotic, but it should not be worried, since, in a distributed system, everything that happens is really in the hands of smart contracts that make there neither place to double interpretations, nor misunderstandings, nor acts of corruption, nor emotional disruptions.The nodes join each other in such a way that none of them has filter power on the information that is transmitted in the network, consequently, the idea of center and periphery, basic characteristics in centralized and decentralized networks, disappears.If some node fell, it would not disconnect anyone else, therefore, it makes it a practical, robust, and efficient network.
Decentralization is not an exact state but offers a wide range of possibilities.That is, no blockchain network is completely centralized, decentralized, or distributed.
Networks generally have centralized, decentralized, and distributed aspects, all integrated into their architecture.Although many blockchain systems are more decentralized than centralized, their level of decentralization varies from one protocol to another.
Some networks have even been accused of hiding behind the veil of decentralization despite being relatively centralized.But we must conclude that a distributed network is the best possible state to respect the spirit of the cryptosphere.
We could consider the distributed network as the most extreme case of decentralized networks.
Let’s see what we can say, in terms of centralization and decentralization, about the first 15 cryptocurrencies in the order they are listed today on CoinGecko.1- Bitcoin (BTC)
Many consider Bitcoin as the leading blockchain in terms of decentralization, although some could argue against this.It employs a work testing mechanism (PoW) that, unlike other mechanisms, consumes a lot of energy and requires specialized equipment to participate.This makes it incredibly expensive and almost impossible to assume control now that the network has grown so much during the last decade.
So very few can access mining in this blockchain, and this “quasi-centralization” is what gives security to this network.
In the Bitcoin blockchain, those who verify transactions are called miners and are scattered all over the world.Most miners, however, are not independent.They need to participate in large mining groups to have consistent income, thus transferring their mining power to the group.This means that the one who controls the group controls the consensus vows of all the participating miners.The more independent miners exist and the more uniformly distributed the power of mining is, the more decentralized the Bitcoin network will become.Over the years, more miners have joined the Bitcoin blockchain, thus promoting its decentralized aspect.
In 2020, no Bitcoin mining group had more than 25% of the hash rate of the platform.The Bitcoin network had almost 100,000 nodes in 2019.
2- Ethereum (ETH)
Ethereum is the largest network in terms of developer activity and is also the second-largest blockchain, and some pretend that it is even more decentralized than Bitcoin, since it is now in transition to PoS with its last update Ethereum 2.0.
Since it does not require specialized equipment, Ethereum’s advocates affirm that PoS is more decentralized in the sense that it has a smaller entry barrier when it comes to staking.
Although participating independently in the network consensus requires a minimum of 32 ETH to be blocked, there are several services available as MyEtherWallet, Argent, and others that allow you to stake a smaller amount.Staking a smaller amount through these services means that you will not be a complete validator node, but it will be analogous to a small Bitcoin mining that participates in a Bitcoin mining group.Ethereum is in the process of passage from a PoW system at a PoS, a point in favor of decentralization.PoS is more decentralized than other protocols since it does not require mining groups to make income more consistent.
More than 16,000 additional validation nodes were activated for Ethereum 2.0 at its launch of December 1, 2020, and the more nodes, the strongest the argument of decentralization.
Ethereum enters the category of “Gurú-dependents”, that is, there is a very strong figure back, and that does not do it well to decentralization, even though the platform is technically decentralized.
3- Tether (USDT)
Tether is a stablecoin stuck to the dollar.It is controlled by Tether Holding Limited.It was released by the same team that handles Bitfinex, one of the centralized cryptocurrencies exchanges with more volume.
USDT is probably the most centralized project of all the cryptosphere, along with XRP and USDC.
USDT is a stable cryptocurrency with collateral in fiat (USD in this case) full of shadows, being the most hated stablecoin from the ecosystem despite being (or seeming to be) the most used stablecoin.It is full of inconsistencies in its audits, auditors that publicly renounce indicating that it is impossible to determine the veracity of the accounts, bank in Taiwan where financial regulation is really weak, instant emissions of coins, a tangle of companies behind wanting to hide the trace, multiple demands, unfavorable reports against them, operating volumes enormously swollen tripling the capitalization of the currency.
It is difficult to understand why it has number 3 in the ranking.
USDT, XRP, USDC are the closest things to fiat that the cryptosphere has.
4- Binance Coin (BNB)
Binance Coin is the native currency of Binance, one of the biggest cryptocurrency exchanges, initially created in the Ethereum blockchain, using the Token ERC-20 standard, but later migrated to the Binance Chain.Binance will emit a maximum of 200 million BNB tokens.Its main objective is to promote exchange operations while providing comfort and accessibility to investors and enthusiasts of cryptocurrencies.
BNB uses its own Binance Chain blockchain, which uses cryptographic encryption to avoid violations and data interception.Since this blockchain is decentralized, there is no central entity that can be pirated to compromise the data.In addition, Binance is a reliable name in the cryptographic space for the security layers that add to keep your personal information and your funds safe.
Here is an interesting mix.
On the one hand, there is a highly centralized exchange as a Binance that provides its name to an independent and decentralized blockchain that operates with the token BNB.If we had to qualify it, I think it is closer to centralization than decentralization.In addition, this is another “Gurú-dependent” project managed by a charismatic leader, which always sows doubts with respect to decentralization.
5- Cardano (ADA)
Cardano began its development in 2015 and was launched in 2017 by Charles Hoskinson, co-founder of Ethereum and Bitshares.According to Hoskinson, he left Ethereum after a discussion about keeping Ethereum non-profit.
After his departure, he co-founded IOHK, a blockchain engineering company, whose main activity is the development of Cardano, along with the Cardano Foundation and Emurgo.Too many foundations and private companies as if to talk about decentralization.Cardano is considered by the company as the most decentralized smart contract platform of the cryptosphere.But…
According to Hoskinson, Cardano surpassed the existing problems of Bitcoin’s slowness and rigidity and the insecurity and non-scalability of Ethereum and is considered by the company as a third-generation currency.
This is another “Gurú-dependent” project, with a very active leader in all social networks, especially on YouTube.Many accuse Hoskinson to talk a lot and do little.We will see.
6- Ripple (XRP)
Ripple depends on OneCoin.It is a pre-mined currency, that is, its amount can change if the company wants it and there is no mining work or validation of transactions autonomously by different nodes.
The Ripple network is handled with centralized special nodes or validation servers that do not offer incentives, since the network is managed by independent property servers.
This has led to accusations that the Ripple network is extremely centralized because most validation servers are operated by banks and Ripple Labs, a OneCoin subsidiary.
Ripple was conceived as a currency for banks.Ripple thought of its digital currency as the traditional fiat currency and is designed to be easily used as a means of payment.It was released in 2012 to facilitate global financial transactions.It differs from other digital currency platforms by its connections with traditional banks, including Santander, Bank of America, and UBS.
There are about 90 banks and financial institutions of Japan and South Korea that operate under the XRP platform, in the testing phase.As if this were not enough, American Express, adhered to Ripple to streamline cross-border capital movement operations.
Incredibly, after this record, Ripple Labs, Inc considers itself a benchmark of decentralization.
7- Dogecoin (DOGE)
Doge is basically a joke.
It is quite difficult to take Dogecoin seriously, considering its story and its mascot image.Even so, more and more crypto analysts believe that this coin is one of those spontaneous archetypal phenomena that will remain in our society for a long time.The most notorious fact is that Doge plans to cooperate with the Ethereum platform.The technological value of Ethereum, combined with the public image of Dogecoin, can produce very good results.The global crypto community has been talking about Dogethereum for quite some time.
Dogecoin is a unique cryptocurrency that originated from a meme.
It is based on the Litecoin structure and uses the PoW algorithm.It is in the market since 2013 when the two co-founders Billy Marcus and Jackson Palmer came up with the idea of creating a digital currency from a meme without meaning but popular, on a dog Shiba Inu.
It is difficult to comment on Doge.Its architecture is similar to Bitcoin, but we can not consider it as very decentralized, being supported as it is by immense media power and by the Emperor of Mars and Lord of the Rockets.Social media are the great Doge trigger.
8- Polkadot (DOT)
The Polkadot protocol, as stands out on its website, is the Web3 Foundation Badge project, a foundation created in Switzerland to build a functional and easy-to-use decentralized website.
Due to the prestige of its creator, Polkadot enjoys a great reputation in the Blockchain industry.The protocol was created in 2017 by Gavin Wood, Ethereum co-founder and also the author of Solidity programming language.
This language is used in the construction and implementation of smart contracts.
Polkadot is a blockchains aggregator.This is achieved by means of its central ring (relay chain).Through it, diverse blockchains can connect and run in parallel (parachains).In this way, the possibility of creating funnels in the system is reduced when there is a high number of transactions.
The advantage of the blockchain of Polkadot with respect to other protocols is its governance mechanism.All DOT token holders (not just miners or validators) can vote transparently in the improvement proposals.
DOT also runs the danger of being “Gurú-dependent”.Polkadot says aims to interrupt Internet monopolies and empower individual users.
We only hope that the Web3 Foundation does not become later in a new monopoly.On the other hand, when interconnecting blockchains, what will happen when you connect to a very centralized network?
9- USD COIN (USDC)
USDC is a stablecoin created by Center and CoinBase in order to compete with USDT, integrate into the payment system of both companies, and additionally, presents a much more transparent operating structure than their counterparts.
That is, it is the same as USDT, only that the last letter is different.
Coinbase and Circle, two private companies, joined their efforts and created Center, a company that is responsible for the use of USDC.USDC is anchored 1: 1 with the dollar, and it is actually a token ERC-20 running on Ethereum (ETH).
Center is a company created together by CoinBase and Circle, all of them registered in the United States, and not only that, they are under the strongest regulations in the country when they are located in New York.This means that they are registered as a monetary service company (MSB) registered with aval of the Financial Crimes Enforcement Network (FinCEN) of the United States Treasury Department, and maintains money transmission licenses (or equivalent) in 48 states and territories of that country.It also has a BitLicense license in New York and an endorsement by the Financial Conduct Authority of the United Kingdom.
Do you think USDC is centralized or not?
10- Internet Computer (ICP)
ICP is part of an ambitious project to reinvent the Internet.
It is a cryptocurrency based on a blockchain protocol of the same name whose objective is to reinvent the Internet as we know it.
The project is led by the Dfinity Foundation, a non-profit organization based in Zurich (Switzerland) and Palo Alto (California, USA).The idea of its developers is to convert the Internet Computer into the first “Blockchain Computer” of the world that runs at the speed of the Web and has an unlimited capacity.In this aspect, one of the main missions of the project is to decentralize the Internet and computing in the cloud, competing with some of the technological giants.
The plan is to snatch the control to giants as Amazon, Google, Microsoft, and Apple, among others.It consists of creating a public network that provides a decentralized global computer cloud, taking advantage of the blockchain smart contracts to allow users to install, create and run software and/or websites without the need to go to the services of large platforms.The truth is that the vision is very attractive and tempting, but, what is the reason for making a project of such magnitude depend on a Foundation? Why not do the same with a pseudonym like Nakatomi Shibushishi?
11- Polygon (Matic)
Polygon uses a state machine compatible with EVM, and therefore it is very easy to transfer dapps and smart contracts that run on the Ethereum Blockchain to the Polygon network.
Matic Network (now called, Polygon), is a project that develops a second layer solution based on Ethreum and an independent PoS blockchain network.Despite the change of name, the project continues to maintain its existing products, while starting a new strategic change to become a second-layer aggregator of multiple chains to a single Polygon chain for more performance, using the Plasma framework for the safety of assets and a decentralized network of validators.
Polygon went on the market in 2017.
It was co-founded by Jaynti Kanani, SanDeep Nailwal, and Anuurag Arjun, two experienced blockchain developers and a business consultant.Before moving to their network in 2019, the founding team of Polygon contributed to the Ethereum system.The team worked implementing the MVP plasma, the WalletConnect protocol, and the Dagger event notification engine.
For me, see developer names with trajectory is much more reliable, always in terms of decentralization than seeing names of foundations, private companies, and/or gurús.
12- Bitcoin Cash (BCH)
Bitcoin Cash is a Bitcoin Hard Fork, so, in terms of decentralization, it has no differences from Bitcoin.There are several Bitcoin Hard Forks, but BCH is the most successful.Bitcoin Cash appeared because a group of developers had an idea to improve BTC and the rest was against implementing them.As there are many disagreements in the community of cryptocurrencies, BTC and BCH exist in parallel.
Bitcoin Cash was launched on August 1, 2017, when Bitcoin began to have more and more problems.The Soft Fork Segwit already existed but did not solve the root problems.
13- Uniswap (UNI)
Uniswap is an open-source protocol built on the Ethereum blockchain, which provides a unique solution to simplify the ERC-20 tokens exchange process without centralized third parties.This means that users administer their funds by themselves and do not depend on any centralized resource.In other words, Uniswap is a decentralized exchange based on Ethereum that allows anyone to exchange their ERC-20 tokens with each other.
Anyone can do this, and for transactions, you do not need registration, identity verification, and other things that are generally required by the exchanges.Uniswap was created to address the liquidity problem faced by the exchanges of conventional cryptocurrencies.Liquidity itself is the ability to sell any stock of coins on the platform without significantly affecting the price.
When a protocol works with a decentralized mechanism, there is no order book for traders.To provide the necessary tokens for exchanges, liquidity is needed.
Uniswap works on this base.
Instead of linking buyers and sellers to determine the transaction rate, Uniswap uses the fixed equation X * Y = K, where X and Y represent the amount of tokens ERC-20 available in the liquidity pool, and K is a constant value.Basically, Uniswap balances the value of the tokens to exchange them according to the number of people who want to buy and sell.
Uniswap is not an independent project in its own blockchain, but it is a decentralized application on the Ethereum platform.Even though it works on Ethereum, Uniswap is the closest thing in the real world to a distributed ecosystem, with the total absence of any type of control.
14- ChainLink (link)
ChainLink (LINK) is a well-known decentralized oracle project that runs on the blockchain of Ethereum and has become the main pillar of interconnection between the real world, the dapps, and the DeFi ecosystem.
In this sense, ChainLink is precisely that, a huge network of decentralized oracles that runs with the help of the Ethereum network and an ERC-20 token that allows creating of an infrastructure of self-sufficient, safe, and above all decentralized operation.ChainLink owes its operation to a node network called ChainLink Nodes (CN).
The goal of these chainlink nodes is to run a program capable of monitoring the data from an event in the real world and feeding these data to the smarts contracts that are running on the Ethereum network.
How can we be sure that the data provided by the nodes are correct? To solve this, ChainLink gets the information from many different nodes randomly.After that, it generates consensus between the answers obtained, taking as valid the answer indicated by most of them.As a protection measure for manipulated data, ChainLink uses game theory, as well as incentives/disincentives to avoid bad practices or malicious data handling.
The incentive for node operators is to give correct answers in exchange for a small financial compensation.The more accurate the information is, the better the financial compensation, so an environment is created in which the data certainty is rewarded.
The rewards are paid with the Token LINK.On the contrary, the manipulation of data from the nodes brings the opposite, assuming a kind of fine and the degradation in the confidence of said node.
Like Uniswap, ChainLink can be considered as a very decentralized platform, probably distributed if it is considered that the algorithms used to achieve consensus in the information that will be transmitted to a blockchain, processes the information in a total honest way.
15- Litecoin (LTC)
It is impossible to talk about the history of Litecoin without mentioning Bitcoin since Litecoin was created in response to the apparent defects of the first cryptocurrency.Unlike Satoshi Nakamoto, the mysterious and silent founder of Bitcoin, the creator of Litecoin, Charlie Lee, maintains a very popular public profile.
Charlie Lee worked on Google when he released Litecoin through an open-source client on Github on October 7, 2011.The Litecoin network saw the light on October 13, 2011.
Charlie Lee finally left Google to work as engineering director in Coinbase, a prominent cryptocurrency exchange.Now he is the general director of the Litecoin Foundation.
Litecoin was a Bitcoin Hard Fork.Later, Litecoin himself was bifurcated in February 2018 to create Litecoin Cash (LCC).
From the point of view of decentralization, Litecoin has no differences from Bitcoin.In this case, the situation is aggravated by being in the group of “Gurú-dependents.
Conclusion.
Centralization does not mean per se something bad.
Of course, as long as the management team of a centralized platform is transparent, honest, and seeks to solve the problems of the users, instead of seeking the creation of power centers to master the operation of the platform and make it work in their favor.
In fact, the spirit of the Crypto ecosystem is undoubtedly that of decentralization and better yet, that of distribution, as the most extreme form of decentralization.
On the other hand, decentralization per se is not a guarantee that users can connect to each other and vote democratically.Only a distributed network can guarantee the functioning of total freedom without control dependence.But of course, a distributed network works without confidence among users, only by the code of smart contracts made by human beings, which may be failed, intentionally or not.
It would only be expected to reach the distributed networks that run on smart contracts, coded by other smart contracts, in turn, coded by other smart contracts.That is, away as much as possible from the human influence of the cryptosphere.
The metrics developed so far are not too tested and should continue to generate statistical activity to be reliable.However, it would seem that the number of nodes of an ecosystem is a necessary condition, although not sufficient for the decentralization of a network.
And in this, I think Bitcoin and Ethereum do not have rivals.
Is it why they are number one and number two?
Also, and this is more emotional than scientists, I think that the fewer foundations, private companies, and gurús are in front of a platform, the more reliable the project will be for users.
In any case, at first glance from the ranking, it seems that at the moment, the market does not take the centralization or decentralization of a project as a very important variable in order to invest in it.There is still a lot of ways to go, being that this technology is recently taking its first steps and surprising us day by day.
As usual, none of the things written in this post are financial advice and are not intended to replace personal research.
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