How Decentralized Are Cryptocurrencies?

Bitcoin, Ethereum and Litecoin; are some of the biggest cryptocurrencies on the market, with their main selling point being decentralization, but are they really decentralized?

Over the years, DeFi, or Decentralized Finance currencies, have become very popular, but I would disagree with the fundamental definition. DeFi is most commonly referred to as projects based on the ERC20 protocol; however, this can create a misleading title. My definition would consider any monetary currency that is decentralized to be DeFi (it just makes sense!)

Main concerns

  • It’s expensive and time consuming for decentralization
  • The alternatives slow down the blockchain

Ethereum 2.0

Ethereum has far more transparency — Richard Quest

Ethereum 2.0, or “Serenity” has an excellent reason for an update. Proof Of Work will sooner or later make severe impacts on our already degrading environment, and Proof Of Stake nearly eliminates our footprint. With minimal server requirements to run a validator, only the initial staking amount creates the roadblock that I’ll be addressing.

You need 32 ETH to stake. This is $21,374CAD at the time of writing, and obviously, not everyone had that kind of money to lock up for a validator. At Ethereurums rudimental values, it needs to be decentralized, insinuating they would want as many nodes as possible! The logic behind it is that if it were a smaller amount, so many people would stake, that the network would be unusably slow.

The main problem

Bitcoin

Bitcoin will do to banks what email did to the postal industry — Rick Falkvinge

Bitcoin is undoubtedly the biggest and most impactful cryptocurrency ever. It has had the most prominent news presence, especially in the bull run of 2017; nearly everyone knows it. Bitcoin is decentralized. To face a 51% attack is next to impossible with the estimated millions of miners; it is unfeasible for a takeover to happen, but that doesn’t mean it is perfect.

Things get a bit better when looking at bitcoin. Anyone can mine and validate bitcoin regardless of computer specs, just maybe not with great success.

The Main problem

With 2% of wallets holding over 47% of bitcoin in circulation, it makes the currency very susceptible to market manipulation. We have seen this before, with the best example being this month’s massive bull run, with volumes hitting ATHs, so does the price of bitcoin among many other cryptos! While whales haven’t caused any detrimental issues on the network, there are several groups that deliberately use the same trades to enhance profits.

What We Can Do

Fun fact: Amazon has a higher market cap than physical US dollars in circulation!

Concluding Thoughts

Money has power, the power we give it — Aleem Rehmtulla

Blockchain and AI developer

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store