Bitcoin’s Most Important Quality – Bitcoin Magazine
This is an opinion editorial by Neil Jacobs, a Bitcoin advocate, educator and content creator.
Bitcoin’s most important quality is decentralization. In the Bitcoin White Paper, there are more than a dozen references to removing trust in central entities. Decentralization away from financial institutions was Satoshi Nakamoto’s cover motivation for creating Bitcoin: “to allow any two willing parties to transact directly with each other without the need for a trusted third party.”
Unfortunately, entire crypto industries such as DAOs, DeFis, and DEXs have used the term decentralization as little more than a marketing buzzword.
Modern fans of cryptocurrency rarely bother to ask what decentralization means anymore. Even their acronyms distance their activities from the claim of meaningful decentralization. Better for the public to assume that a decentralized autonomous organization exists with meaning, because DAO is a popular acronym. Certainly, the acronym must describe something meaningful about the thousands of entities managing billions of dollars whose leading adjective is “decentralized.”
However, decentralization is very difficult to achieve and maintain. Nakamoto constructed a sufficiently decentralized payment network away from trusted third parties after inadequate attempts were made by other cryptographers, and acknowledged their work in the footnotes of the white paper.
See, almost everything about a blockchain improves with centralization.
A centralized team can increase speed, storage capacity, functionality and responsiveness. Centralized teams minimize red tape, fix bugs quickly, reduce fees, improve user interfaces, respond to business opportunities and attend to press and community inquiries. Centralized blockchains are always cheaper and faster.
Nevertheless, centralized blockchains have no scarcity.
It is because of decentralization that some put a significant amount of their wealth into Bitcoin. It is critically important to understand why this quality is important.
Decentralization is the only thing that gives Bitcoin credible scarcity. All other coins are controlled by an oligopoly or a small group of insiders. They can make – and change – the rules.
As Satoshi Nakamoto wrote in the white paper, a common way to build a double-spending-resistant financial network is to “introduce a trusted central authority, or coin, that checks every transaction for double-spending.” Centralizing trust in authority is actually the cheapest and most convenient way to shop online. Bitcoin, on the other hand, requires no trust in any central authority.
For example, Ethereum’s ICO was pre-mined. Even today, only four entities control the private keys of the majority of Ethereum at stake: Coinbase, Lido, Kraken, and Binance.
Because decision making on Ethereum’s issuance schedule is so centralized, its future supply is unknown. Its leading analyst’s estimate for when the supply of ETH will correspond to 100 million ranges from five to 38 years.
Ethereum Foundation insiders repeatedly delayed their promised difficulty bomb without a community vote, altering ETH’s supply issuance. They quietly activated dozens of hard forks without community notice that went unilaterally within hours.
Bitcoin alone has over 14,000 fully validating, archive node operators that enforce bitcoin’s 21 million hard cap. Because it is so cheap to run a full Bitcoin node, new operators join the network daily.
Fully validating, archive nodes secure Bitcoin. Securing Bitcoin means enforcing consensus rules about what is included and added to the blockchain. Consensus is when everyone agrees on who owns what. Only full nodes can enforce consensus and provide credible scarcity over Bitcoin’s supply.
Because Bitcoin has always prioritized low-cost operation of nodes, it has enabled by far the largest and most distributed network of people who have reached consensus without relying on any third party. Fully validating, archive nodes ensure that no one double-spends bitcoin and that its 21 million supply cap persists.
Full nodes allow anyone to send and receive bitcoin without trusting any central party.
Decentralization makes consensus possible without threats of violence, imprisonment or civil forfeiture. Other projects simply use the word as a label to avoid questions about their controlling oligopolies.
As Satoshi Nakamoto wrote in October 2008, “What is needed is an electronic payment system based on cryptographic proof rather than trust, which allows any two willing parties to transact directly with each other without the need for a trusted third party.”
Today, almost 14 years later, Bitcoin is still a decentralized payment network. It chooses inefficient decentralization on purpose. This unmatched quality makes it the only technology for online transactions without the need for a trusted third party.
This is a guest post by Neil Jacobs. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.
