Evan Shapiro has a new piece in Coindesk decrying a growing lack of decentralization in the machinations that run Bitcoin. Specifically, he points out that a huge chunk of the chain’s hashing power resides in one country, China, and seems to imply that because China is a communist country, this, too, is a problem for Bitcoin.
The Centralization of Bitcoin
There are other elements of centralization within Bitcoin, like the small number of companies that now produce the specialized hardware needed to mine the cryptocurrency. Bitmain is one of just a handful, and it arguably does most of the business that there is to do.
Shapiro acknowledges that some people won’t seem to care. Even if a group of miners was able to control the blockchain, for example, it probably wouldn’t be in their best interest to conduct what’s called a 51% attack. Yet, the security, and ultimately the image, of Bitcoin comes into question when such things become possible. How many people would really have to collude for such a thing to arise? In the case of Bitcoin, it may only be a handful.
If Bitcoin has become centralized, at all, then other cryptocurrencies are certainly doomed. This is the conversation that probably no one wants to have: if you can’t decentralize the biggest, with the most money attached to it, how can you expect to fully decentralize the cheaper ones, which by definition are likely cheaper to attack?
As some have pointed out, centralization doesn’t have to be a bad thing. There are mostly centralized cryptocurrencies like XRP which seem to function just fine. The problem is that people sign up for something else entirely, and then this is what they get.
The Way Forward
Shapiro wants people to know that blindly accepting centralization can lead to a corrupt and problematic regime. As centralized parties consolidate their power, new rules and norms can start to emerge. Before you know it, using Bitcoin is quite different than it was before, and possibly more expensive.
Shapiro blames the increasing centralization of Bitcoin on the difficulty of actually accessing the blockchain. He writes:
Until we can remove these barriers, big tech exchanges are the only option. You may not be a customer of Goldman Sachs or Bank of America (yet), but you’re dealing with the same type of players with a different face, setting the rules to maximize profit from you for their shareholders, and collecting every mouse click and transaction. Crypto was supposed to protect us from this, but instead it’s given us new names with the same misaligned incentives.
Shapiro believes that crypto is currently becoming a sham industry, and is in danger of losing itself completely. Specifically Bitcoin, but there are others that go along the same route he describes.
The end result is a head-scratcher, as we don’t necessarily know what the future will bring. If more people have direct access to the blockchain, then perhaps the charlatans and profit mongers will have to take a backseat. Given how unlikely that is, we can expect some of what Shapiro writes about, at least, to come true.