Decentralization as illusion. How really decentralized is current market? Tip of the iceberg
This year was quite challenging in cryptocurrency: We experienced market cap growth, surge of Bitcoin and thousands of alts. New exchanges were added, amount of cryptocurrency users radically changed.
Needless to say, that attracted governmental attention all over the world which resulted in serious restrictions on exchanges, ICOs, and other aspects of crypto market.
So, what's decentralization?
Decentralization is process of authority transfer from centralized body to several/multiple independent bodies.
One of the main reasons why early enthusiasts started to adopt Bitcoin and other cryptocurrency is because they have seen it as shelter from overly regulated and centralized financial system, where people had to deal with middle man (Bank) that was approving/disapproving transactions, monitoring money transfers, collecting your personal/financial information and often even disclose it to 3d parties, without your consent.
However, it seems that it's no longer true in many occasions.
Let's take a look
Kraken - requires ID verification.
Gemini - requires ID verification
Coinbase - requires bank and ID verification (depending on the amount of money)
Bittrex - recently imposed strict verification Rules
Bitfinex is going to cut any interactions with US-based clients by November 9th
No need even to mention multiple ICO bans, and regulations all over the world.
The worst thing is that vast majority of people just silently agrees on that, following greediness impulse of making couple dollars. The most important thing is that vast majority of users don't understand that cryptocurrency value is in its decentralization, and centralization processes with regulations is decreasing real crypto value (I am not talking about speculative price right now).
Why would average Joe use crypto, if he would still need ID verifications, and his financial information still can handed to third parties ? Isn't it easier then for him to use usual bank system, where his money are returned in case of failed transaction, or if they were stolen by hackers, unlike cryptocurrency? Also, what would stop banks from using their own blockchain, which wouldn't be publicly traded in the form of coin? Absolutely nothing.
It's also important to mention current BTC distribution:
Fraction of all Bitcoins for top 100 addresses 16.90%
Fraction of all Bitcoins for top 100 wallets 17.76%
Fraction of all Bitcoins for top 1000 wallets 35.36%
Total BTC in top 1000 wallets 5,861,586 BTC
Source: http://www.bitcoinrichlist.com
Not a secret, that users rarely hold all their investments in one wallet, and in many cases several wallets might belon to the same person.
Another important player is government: Throughout years, law enforcements were seizing large darkweb trading platforms:
https://www.forbes.com/sites/kashmirhill/2013/10/04/fbi-silk-road-bitcoin-seizure/#190e334f2848
This is 26,000 BTC in 2013 alone!
BTC-e
It was reported that Coinbase (large US-based exchange) is tracking down spendings of their customers:
https://cointelegraph.com/news/coinbase-is-tracking-how-users-spend-their-bitcoins
What about "anonymity"? Is it as anonymous as some people try to convince? I don't think so. It was rumored that IRS and governmental financial intelligence is capable of tracking down users through specifically designed analysis tools.
Somebody might say: Well, it's not bad, we are finally going to act in a legal, controlled and clean field!
The problem with that is... you came to this market because of its volatility, unpredictable character which allows you to make all your profits. And being decentralized helps it to stay this way. If you believe in overly regulated markets - then welcome to stock markets and FOREX, where you compete with large financial corporations that don't wait for news on the market - they make them.
I am not trying to convince anybody or change market direction - that's not going to happen. All I am trying to say is that we have illusion of cryptocurrency winning the battle, when in fact we are losing it.
Thank you for reading
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