Why Centralization Is Inevitable In Cryptocurrency Space?

Avid crypto bulls often talk about cryptocurrency as a tool to topple the centralized institution, however looking at the bigger picture we are centuries away before witnessing such a concept. The current problem at hand is a wider acceptance for cryptocurrencies, which can only be achieved in association with the centralized institutions like regulators and government, thus it is safe to say that centralization is inevitable in cryptocurrency space.

Cryptocurrency promised to bring in a financial revolution through decentralization, where the peers on the network are in control of all the activities. Generally, in the crypto fairy tale told by many enthusiasts, centralized institutions like Banks and government are anti-protagonist. Decentralization does promise true democracy by providing equal opportunity to all, however, decentralization is not necessarily helpful in every walk of life.

In this article, we will try to analyze how centralized institutions have a major part to play in bringing cryptocurrencies to the forefront and help it gain wider acceptance.

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Cryptocurrency and Centralization

The concept of people having total control over their finances could only be possible in places where anarchy prevails. Different countries in the world are run by a top-to-bottom governance approach, be it a democracy or dictatorship. The current system of centralization is not perfect but, it’s working perfectly fine.

The concept of cryptocurrencies came into existence when Satoshi Nakamoto introduced the Bitcoin white paper in 2009. The white paper described it as a cashless network of finance among peers. The vision of Nakamoto was to provide a tool to developing nation to help them get rid of the monopoly of banks, however as the concept gained some momentum back in 2017, thousands of new coins came into existence.

Being a new concept the focus should be on a wider acceptance and strengthening the technology, which is only possible when the centralized institutions and the crypto space work in a partnership. The only way the crypto can be widely accepted if it is well regulated. Regulations might sound bad but, it is inevitable.

You cannot simply start using a service or product which is not recognized by the authorities since they have the control. Anything which is not approved by the government automatically falls under the illegal bracket.

Cryptocurrency does preach the concept of decentralization and true democracy, however, are all the cryptocurrencies decentralized? The answer is NO, most of the new tokens entering the crypto market have deep-rooted control of the makers. This is the reason, apart from Bitcoin and Ethereum most other tokens are categorized under “security” rather than an entity.

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Cryptocurrency Space is not As Decentralized As people Believe

Bitcoin was an open-source project which helped the other creators to form their tokens based on the original concept of Bitcoin. However, as the Bitcoin climbed the trade market charts, the decentralization took a backseat and the main focus was immediate monetary gains.

Most of the tokens which are listed on the trade market have some form of centralization embedded into them. Let us make things simpler to understand how crypto space is centralized.

  • If the initial funding for your token was done through ICO, its centralized.
  • If the token has a core team who have a specific amount of the total token reserved for them, the cryptocurrency is centralized.
  • If the token has investors on board it is centralized.
  • If the cryptocurrency has a reserve, it is centralized.

Thus, it is quite evident that the crypto space is not as decentralized as many would have told you. However, even a centralized form of cryptocurrency promises quite a lot of advantage over the mainstream fiat, like faster transactions and lower transaction fee.

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Regulations are the Only Way to Wider Acceptance

In order to be recognized form of entity in the financial sector, cryptocurrencies must have approval from the government. Regulators are often projected as the hurdle, but without proper regulations in place, there would be no way you can be safe against fraudsters and scammers.

Without a set of guidelines over the use, you can neither expect anyone to help you recover your crypto in case of theft or scam, nor you have the option to seek help. Thus, centralization to some extent is definitely the need.

It’s understandable that regulators might have put some restrictions earlier over the use, but it’s their duty to be cautious and as the technology grows and it has the potential, regulators simply cannot deny it.

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