The launch of JP Morgan’s proprietary cryptocurrency and Binance’s decentralized exchange have raised fundamental questions about where the industry is headed.
Both the products fall short of adhering to the conventional definition of decentralization, instead of setting a new precedent for others to follow.
Since its launch, JPM Coin has been massively critiqued for not being a digital currency. The CEO of Ripple, Brad Garlinghouse, remarked that the closed network model of JPM Coin is missing the point of what Bitcoin set out to reach a decade ago.
The critical point is how JPM Coin falls short of what the industry has come to comprehend as a cryptocurrency.
In essence, JPM Coin is a digitized IOU just available to institutional clients of the bank. The only motive behind it is to reduce the typical settlement time between the clients.
Considering the number of decentralized exchanges available already, the Binance DEX looks to be an improvement.
Though it offers low transfer fees, on-chain transactions, and incredible speed, yet there are potential shortcomings much like JPM Coin.
An exchange that can perform 1000 transactions every second is most likely cutting corners on the decentralization.
If decentralization is something that’s defined by the number of nodes in the network, then Bitcoin has 10,516 nodes operating, Ethereum with 9,091, and Ripple Ledger has 1094 nodes at the press time.
“Minimal Viable Decentralization” Theory
Both Binance DEX and JPM Coin seem to refrain from the classification of digital currency and decentralization. JPM Coin can be defined as an internal place holder for JP Morgan account balances, whereas Binance’s DEX pushes the boundaries of what’s assumed a decentralized exchange via its handful of nodes.
What both of these products appear to be sharing is their ability to capitalize on the free marketing and hype generated by the crypto space.
With that said, a more positive choice for estimating decentralization would be to use John Backus’ theory of “minimal viable decentralization.”
In a medium post, the co-founder of Bloom and Cognito touches on its tradeoffs which come whenever a company tries to decentralize a product.
Backus Writes –
“Like any software, users flock to the product that gives them what they want.”
If the users demand the instantaneous bank transfers offered by JPM Coin, does it really matter if JPM Coin isn’t technically a digital currency?
Similarly, if traders make a shift over to Binance’s DEX and the platform notices record-high trading volume as well as liquidity, is it imperative that it’s not completely decentralized?
Definitions of the decentralization, cryptocurrency, and many other blockchain aspects are loosely defined and based on the perceptions of users.
Ultimately, the definition of decentralization will land squarely in the hands of any firm that attracts the most use.
If that’s Bitcoin, then Satoshi Nakamoto’s vision will thrive. In case, it’s not, then that raises questions about the decentralization movement began ten years back.