Decentralization v. Centralization in Bitcoin
The irony of the bitcoin landscape so far
Bitcoin and the blockchain are potentially the most powerful decentralization technologies developed, and yet many of the companies in this space are centralized platforms. The irony of this situation is quite apparent. Where are the new products and services that answer the question “wouldn’t it be great if we could do X?”
All of the bitcoin exchanges that have had success so far have been, or are, centralized. The same can be said for the major wallet providers. Even ZapChain is a central repository for the Bitcoin community.
Now there are very good reasons for centralization. With a central party facilitating interactions you and another party work with a trusted intermediary. When things go wrong you have someone to complain to. Similarly, in the case of ZapChain, it is far easier to logon to one website and feel connected to a community. But, why is this the way things have turned out? Where are the decentralized approaches to wallets, exchanges, and ZapChain?
There are some decentralized companies coming. Augur looks like a decentralized approach to prediction markets, but that is a very niche market, albeit one with tons of upside. Similarly, MaidSafe is taking a decentralized approach to the internet. Additionally, the actual blockchain is of course decentralized. There are other examples of decentralized approaches to services, but the major players are largely centralized. Are lowered transaction costs and decentralized trust all that we have to look forward to?
The answer is likely no. As Marc Andreessen said in his article Why Bitcoin Matters:
“Bitcoin is a four-sided network effect. There are four constituencies that participate in expanding the value of Bitcoin as a consequence of their own self-interested participation. Those constituencies are (1) consumers who pay with Bitcoin, (2) merchants who accept Bitcoin, (3) “miners” who run the computers that process and validate all the transactions and enable the distributed trust network to exist, and (4) developers and entrepreneurs who are building new products and services with and on top of Bitcoin.
All four sides of the network effect are playing a valuable part in expanding the value of the overall system, but the fourth is particularly important.”
Andressen’s article is worth reading in its entirety, and Andreessen is right that the new products and services that are being built on top of Bitcoin are particularly important. These new products and services are the ones that have the best chance of being decentralized and offering up something truly new.
What do you think? Why are so many of the companies using bitcoin technology centralized?
