Do Crypto And Blockchain Need To Be Decentralized To Succeed In 2019 !

 

As we begin to look towards 2019, the crypto and blockchain industry is still seeking a firm grasp on its identity. In a sense, the space could be best described as a chameleon, as its various properties and characteristics (such as consensus mechanisms, data kept on chain, and especially the level of decentralization), are to a certain degree malleable so as to enable customized offerings for a given purpose.

This flexibility has served the industry well, and it has proven necessary in a number of situations in order to get initial buy-in from key stakeholders. Consider the following:

• It is difficult to imagine highly-regulated institutions such as banks trusting permissionless systems such as Bitcoin or Ethereum to handle AML/KYC data – at least at this point
• 2^nd layer scaling technologies such as Lightning Network introduce a degree of centralization to open systems, but this tradeoff is largely accepted to achieve the requisite throughput for certain processes

However, this bespoke nature also creates confusion about the true vision and purpose of blockchain technology. This ambiguity did not stand in the way of the late 2017- early 2018 bull-market, but the subsequent descent has put it squarely in the spotlight for 2019.


  Answering this question will go a long way towards ending the crypto-winter and creating a sustainable recovery.
Do We Need 100% Decentralization?
Bitcoin came to prominence because it was the first decentralized cryptocurrency to work. Ten years from its inception, the network has never been hacked. That’s not to suggest it is without potholes and detours – i.e. the Blocksize debate and subsequent forks of the network. However, this model comes with clear drawbacks – namely scalability, limited utility, a mining arms race, and a high degree of energy inefficiency. To a large degree, Ethereum continues to face similar challenges. Furthermore, the distributed nature of each’s protocol's developers, combined with the power of miners, adds significant friction to any effort to make a significant upgrade to the network.

Block chain network and programming concept on technology backgroundGetty

As we begin to look towards 2019, the crypto and blockchain industry is still seeking a firm grasp on its identity. In a sense, the space could be best described as a chameleon, as its various properties and characteristics (such as consensus mechanisms, data kept on chain, and especially the level of decentralization), are to a certain degree malleable so as to enable customized offerings for a given purpose.

This flexibility has served the industry well, and it has proven necessary in a number of situations in order to get initial buy-in from key stakeholders. Consider the following:

• It is difficult to imagine highly-regulated institutions such as banks trusting permissionless systems such as Bitcoin or Ethereum to handle AML/KYC data – at least at this point
• 2^nd layer scaling technologies such as Lightning Network introduce a degree of centralization to open systems, but this tradeoff is largely accepted to achieve the requisite throughput for certain processes

However, this bespoke nature also creates confusion about the true vision and purpose of blockchain technology. This ambiguity did not stand in the way of the late 2017- early 2018 bull-market, but the subsequent descent has put it squarely in the spotlight for 2019.

Answering this question will go a long way towards ending the crypto-winter and creating a sustainable recovery.
Do We Need 100% Decentralization?
Bitcoin came to prominence because it was the first decentralized cryptocurrency to work. Ten years from its inception, the network has never been hacked. That’s not to suggest it is without potholes and detours – i.e. the Blocksize debate and subsequent forks of the network. However, this model comes with clear drawbacks – namely scalability, limited utility, a mining arms race, and a high degree of energy inefficiency. To a large degree, Ethereum continues to face similar challenges. Furthermore, the distributed nature of each’s protocol's developers, combined with the power of miners, adds significant friction to any effort to make a significant upgrade to the network.

This raises the question of whether or not a purely decentralized system is desirable, or if a certain degree of centralization may be ideal. Put another way, are users looking for decentralization in and of itself? Or, are they just looking for a specific utility, such as having better control over their personal data, being able to send money (in any currency) to anyone in the world, and they see a partially decentralized system as a better means to achieve this goal.
This debate is especially important as many investors and exchange operators are seeking to move towards decentralized exchanges, mostly for ideological reasons, despite the fact that they will introduce higher latency, limited trading pairs, and perhaps higher transaction fees.
To answer this question, we need to examine the nature of decentralization itself, which is an operating model, but also an ideological state. The balance of power between these two sides in the minds of users will be critical towards forecasting the optimal degree of centralization for crypto in the future.


Why is this so? Because historically ideological affinity has been a poor driver of mass user adoption. Consider Geoffrey Moore’s adaptation of Rogers’ Bell Curve in his book Crossing the Chasm as a useful model for forecasting the mainstream adoption of a given technology. He eloquently argues that there is a “chasm” between the Innovators and Early Adopters on one side, and the Early Majority, Late Majority, and Laggards on the other.

According to Moore, the initial customer set for any product is made up of primarily Innovators and Early Adopters. These are groups that see the overriding potential in a given technology and are willing to forgive limited performance, buggy software, or certain challenges in functionality. Looking at the crypto market, Innovators and Early Adopters are willing to accept the risk of losing control over their private keys and crypto assets, or perhaps have their identity stolen in a “self-sovereign” system and be forced to start over.
Unfortunately, the Chasm, as described by the model, focuses on making the leap from the Early Adopters to the Early Majority. Unlike the first customer segments, the Early Majority tends to be composed of pragmatists who are concerned with the quality and reliability of the product and its supporting infrastructure. These are users who will be less willing to forgive these shortcomings, especially if their finances suffer.
What does this mean for crypto? In practical sense it means that users want things such as:

• The ability to recover their personal data if their identities are stolen
• A way to reverse a transaction that was sent in error

But even more than that, they want a door to knock on or a phone number to call should they run into an issue.
To cross this “Chasm”, developers will need to focus on solving real challenges for users and avoid being too dogmatic about pure decentralization. If some centralization can help with the throughput of a payments system, can help trusted execution environments for highly sensitive industries and processes, or can facilitate the transmission of regulated data, they should continue to be embraced.
Furthermore, getting additional clarity on this issue will pay dividends in the form of better elucidating the use cases for certain crypto assets (by better defining their demand and core properties). This will help with valuation models, assist with the introduction of new investors in the space, and hopefully and most importantly drive user adoption of blockchain-based programs and applications.