Is Decentralized Bitcoin Really Decentralized?

Bonpay
4 min readNov 24, 2017

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If you read any book, article or even blog post about bitcoin — you will certainly encounter word “decentralized” at least once. Decentralization is one of the key reasons, why cryptocurrency attracted so many committed users in the first place. And if in the early days of bitcoin it was totally true, now most people would hesitate to say “Yes, bitcoin is absolutely decentralized, unregulated and independent”.

Traditional money is regulated by government and thus easily affected by emissions and devaluation. Banks hold funds of clients and when bank bankrupts, all those money are just buried with it. So cryptocurrency was invented to destroy dependance from both above mentioned institutions to ensure that value of people’s funds won’t drop just because government decided to pay its national debt by printing more money.

Exchanges — killers of decentralization

Many experts say that when cryptocurrency exchanges came to the stage they killed the decentralization of bitcoin. They offer clients to store their coins safely, also they provide services for buying, selling, converting cryptocurrency into fiat and vice versa. That sounds good, so most people prefer to store their funds using such services, but let’s face the truth — they are banks for cryptocurrency. And when exchange has a hacker attack, or some bug, or its founder decides that, one — honesty is not the best politics after all, and two — whoever said money can’t buy happiness simply didn’t know where to go shopping, he or she just takes all the clients’ money and lives happily ever after.

Whales — big fish in cryptoworld

One more problem, typical to cryptoworld, is the existence of so called “bitcoin whales” — individuals or groups who own vast amounts of bitcoins and can sometimes affect the market towards their preferential price. Satoshi Nakamoto, elusive and mysterious, seems to be the largest whale with estimated asset of more than 1, 000, 000 bitcoins. Luckily, it seems that he so far has spent only 500 bitcoins, as programmer Sergio Demian Lerner found out by examining ledgers, and hasn’t affected the market.

Mining — available not to everyone

Mining of bitcoins is now became almost unavailable for average person. You can’t just buy graphic card and start mining bitcoins with your computer — first, your bills for electricity will be larger than profit, and secondly, process of mining will take so long that maybe only your grandchild will get few bitcoins (if he will be lucky enough). To say nothing of noise and heat, that will make living in the same apartment with mining equipment terrible. People and corporations who can afford it, build whole plants for mining, and this process constantly becomes more difficult. Reality is you have to buy bitcoins for price that is dictated by the market and above mentioned “whales”.

Recently there have been a lot of accusations, that because of extreme popularity and spread of bitcoin mining in China “mining centralization” occurs. Experts estimate that around 71% of bitcoins are now mined there. China not only produces most of mining equipments, but also huge mining farms are located there, taking advantage of cheap electricity. China is also a leader in number of mining pools — collaborations between individual miners and mining companies. China is home to four of the five largest Bitcoin mining pools. Before Beijing banned ICOs (Initial Coin Offerings), China accounted for 90% of all bitcoin trade. Having so much mining power centralized in one country put in doubt decentralization of Bitcoin and exposes the Bitcoin network to a worrying degree of political risk.

But…

… despite all the above-mentioned factors, still Bitcoin is decentralized.

The crucial distinction between system of traditional money and cryptocurrency is that if you use crypto, you have the right and possibility not to hand your money to third parties, while in case of fiat you just can’t avoid that. Also if you use fiat money, your life is traced through your bills — whatever you do, you can’t stay unnoticed. Talking about crypto: yes, many people use exchanges and third party services, because it’s easier to manage their digital money that way, but they can deal with their crypto funds directly, keeping anonymity and privacy. While a user of fiat is always forced to use centralized service, Bitcoin user is never forced to do it. They can, for their own convenience, use exchanges or other services — but they are never forced.

System of traditional money is centralized, and the clear proof of it is that only government controls money and has the right to issue it. Try to invent your own money — you will be punished by the law. But nobody can prohibit you from inventing your own digital currency — it will cost as much as people are ready to pay for it, and now we can see the birth of new cryptocurrencies almost every day.

Cryptocurrency removes a whole layer of banking bureaucracy, giving you financial freedom. Even electronic payments can’t give this freedom — PayPal, for example, can freeze your account any time it has any suspicions. Nobody can ever freeze or forbid you access to your Bitcoin wallet. You don’t leave any personal information while using cryptocurrency. You are the only one who has access to your funds.

So, answering the question “Is Bitcoin truly decentralized?”, we will say with absolute certainty: “Yes, it is”.

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Bonpay

Cryptocurrency payment provider: wallet & card. Learn more at bonpay.com Follow our blog: bonpay.com/blog/