Just wanted to share a quick thought on the decentralization of crypto. It feels like an idealistic movement, but in reality, it might be a precursor to a centralized service build upon the innovation of the decentralized system.
Follow the money
Let’s have a look at the crypto market. Ethereum’s USP is that’s a decentralized store of value and smart contract platform. The problem is… I don’t think people care. People invest in crypto because they think it can make them rich. There’s a small minority who cares about the technique. People don’t care if their financial system is decentralized. As long as they can do groceries and watch television. Just as they don’t care how their car engine works.
So if people are not in crypto for ideological reasons but for monetary reasons they’ll flow into the exchanges and protocols with the best incentives. Centralized protocols can be faster and cheaper because they can trust one authority instead of a network of decentralized servers.
“once you understand people’s incentives, you understand everything”
Centralised Copies Decentralised
An example at the moment is Ethereum. Due to high network congestion, the transaction fees can be over $100. This makes it unusable at the moment until Ethereum is upgraded to ETH 2.0 and the fees come down. Binance, the world’s biggest crypto exchange created Binance Smart Chain with the BNB token as a centralized version of Ethereum. It’s totally against the free-for-all decentralized ideal on which the crypto market is built. But if the incentive is making money, people will find the best place to do so. If Binance Smart Chain can offer the same functionality as Ethereum without gigantic fees people flow to Binance. This will result in a couple of big exchanges controlling the crypto market in a pseudo-centralized way.
Will the decentralized character of Crypto slowly fade away? Just like the internet started out as a free for all place but it’s now mostly controlled by a couple of big tech companies. Only time will tell, but I hope it doesn’t become another Facebook.