Decentralization — the true heroine behind Bitcoin, blockchain and open ledger
Note: If you like to read the full article in German language visit my blog.
Since 2013 I have been working with Bitcoin, blockchain technology, mining, trading, smart contracts, different consensus mechanisms and applied crypto methods. In recent months, however, my focus has shifted from technical interest and personal investment opportunities to ideological approaches to the socio-economic implications of this emerging technology.
Different views, opinions and exchanges of experience lead me to believe that Bitcoin is the catalyst, blockchain the tool and Open Ledger and consensus the guarantor of trust — but the secret heroine of the success story of all crypto currencies is decentralization.
The greatest demands made on the use of a digital currency were and are anonymity, global availability, permanent value storage and the censor and manipulation-proof transfer of values between users via digital networks. The invention of a secure consensus mechanism (PoW) between users and the verifiable storage of all transactions in an “open ledger” using blockchain technology have for ten years provided the basis for the Bitcoin crypto currency to meet this requirement. Based on this, 2nd layer technologies can offer additional services such as authenticity or notarial services in the form of smart contracts.
Bitcoin gives sovereignty over the management of its own finances away from a conglomerate of fiat money-issuing governments and private and state banks. The responsibility is returned to the individual user who has created value through his labor. Therefore, he should participate most in this increase in value. With this intention, the Bitcoin monetary system stands in stark contradiction to the intentions that must be imputed to the globalisation-promoting enterprises and governments.
The conclusion: In order to oppose the negative effects of progressive globalization as an individual or almost influential group, one does not have to distinguish oneself as a masked and stone-throwing protester. The system can be changed more sustainably from within by adopting the positions of the participating parties and trying to recognize their values, views and motivations and to assess the interaction and thus extrapolate backlashes to the future. In this way one can turn the decisive screws and counteract the undesirable effects. For globalization, one of these adjusting screws is certainly global finance. The idea of not only denouncing the established financial system, but completely disempowering it, replacing it with a better one or at least creating a real alternative is very ambitious — but already in full swing. Bitcoin is such an alternative financial system.
The power regained by the user and the increasing value of Bitcoin have awakened desires that have resulted in activities that are considered illegal by most governments: Money laundering, capital flight, tax avoidance and evasion, quasi-anonymous fundraising for uncontrolled arms and drug trafficking, extortion, and last but not least, planning and carrying out terrorist activities. At this point, however, we will not discuss or evaluate illegality — what may be rebellion and terrorism for some, may be a fight for freedom and against oppression for others.
Regulation is control
But ten years after the launch of the first and to this day most successful open ledger blockchain through the crypto currency Bitcoin, governments around the world are putting pressure on trading places to control, license and regulate the markets in order to be able to intervene if necessary. First and foremost, the protection of the investor against fraud and market manipulation is put in the foreground, but of course it is also about breaking up the anonymity of the transactions, making actions and transactions on the blockchain transparent and installing control and regulation tools.
These tools are applied at the conversion points from fiat currencies to digital currencies: The trading platforms — this is where the transformation process and the digitalization of values takes place. Fiat money is received from bank accounts or through payment service providers such as VISA or Paypal or even in the form of cash and converted into the first independent digital means of payment.
The hope of the regulating entities (first of all the governments issuing Fiat money) seems to be that one day every transaction on different blockchains can be traced back to a first “conversion transaction”. Anonymizing cryptographic methods are ignored, as are mixing services or atomic swaps from one blockchain to another — be it in the Lightning Network or via smart contracts in Altcoins, which are used to securitize long-term assets such as metronomes (MET).
Big Brother is watching you — and of course your bank account
The regulatory mechanisms used focus mainly on enforcing a KYC policy (Know Your Customer) of regular companies. Banks, trading platforms and newly issued coins, whose issuers are organised as foundations, companies or associations, are forced to determine, store and verifiably keep up to date the identity of their customers. Those who do not submit to regulation are threatened with removal from the market by the withdrawal of licenses and trading permits. One cannot avoid the impression that it was never about protecting investors, but about not losing sovereignty over the issue of Fiat currencies. Only governments that control the money supply control inflation and thus the possibility of allocating the national debt and thus the loss in value of entire national budgets to the individual citizens (and also savers).
This literal “license to print money” is in danger by a functioning anonymizing digital currency — which of course is denied or hushed up by all governments, deferal banks, state banks and economists. The fantasy of imagining that a functioning digital currency could reform the global economy and lead to a new future seems to be completely absent from these interest groups. They only see their possible loss of control and their centuries-old established supremacy in danger.
Full decentralization = Global Independence Day
The idea of decentralizing money transactions, the pseudo-anonymization of participants through cryptographic processes and the replacement of trust in printed paper and its issuing entities by mutual verifiability of all transactions have made Bitcoin a largely inflation-proof value storage system worldwide, which knows how to fully exploit its advantages over fiat money such as lightning-fast transferability, global availability and blocking and censorship security through digitization.
The conclusion that decentralisation, independence and anonymity are the special characteristics that will make it possible for digital currencies to be traded anonymously on free, transparent, largely tamper-proof and non-censurable trading venues is virtually inevitable. In recent years, confidence in applications based on cryptographic processes and the storage of all transactions in a blockchain has risen sharply. On the other hand, confidence in the trading venues has suffered greatly in the implementation, application and security of spectacular hacks. The uncertainty of the investor, played the regulators directly into the hands.
The contradiction between the desire for an independent monetary system and if not guaranteed then at least the greatest possible security showed that a new generation of trading platforms and decentralized applications would develop. They want to digitize the trade itself, process all transactions in a blockchain and make the trade a trustworthy, decentralized controlled global service independent of governments, banks and companies. We are talking about decentralized trading platforms.
Decentralized trading places such as Cryptobridge enable largely manipulation-proof global trading of crypto currencies, offer the change of digital currencies in the form of swaps and acceptable anonymity. In many cases such a decentralized trading platform is the only chance for smaller and highly security and anonymity focussed exots like Crave to be listed on an exchange with reasonable volume. All methods used and the software are open-source like those of Bitcoin and can be tested and further developed by experienced programmers. By decentralizing the trading places of digital currencies, the trust in cryptographic procedures and the verifiability of the executed transactions is combined with the decoupling of state-regulated trading places into the first independent transparent and free market operated by the users!
Is the future decentralised?
Of course, this does not only apply to the financial world. If this process of transformation and cutting off of trading places at other levels is consistently continued, the combination of decentralization, the application of cryptographic processes and the use of digital currencies offers many new opportunities in a world that is becoming increasingly globalized.
Decentralized markets, digital workplaces, censorship-resistant communications, globally organized communities, a neutral Internet of Things (IoT), decentralized independent and self-organizing forms of business without a fixed location could be part of the future we are heading for. A reorganization and establishment of an alternative financial system could have been the beginning only of a decentralized form of society. Globalisation holds many dangers, but also enormous opportunities — not only for global players in money making. Decentralization is one of the fundamental pillars for the reorganization of global entities, which can be broken down to the individual user.
Those who desperately try to hold on to the old ossified structures of the “establishment” will probably be able to hold on for comparably long, but in the long run (considering a human generation) they are the dinosaurs of globalization because they are incapable of recognizing the changing global market conditions and upheavals, of accepting them, let alone adapting to them.
The winners will be the small, decentrally organized mammals — based on structures that ensure a direct connection to the individual user and make trust authenticable through verifiability.
My two Cents, um, I meant: my two Satoshis
No revolution — neither political nor ideological — was really successful. Usually only the decision-makers were exchanged. But attitudes and values and thus the subsequent power structures were largely preserved. A genuine paradigm shift is only possible if the structure itself is fundamentally changed. Bitcoin shows an example of such a revolution applied to the financial world. The sovereignty over the wealth guaranteed in Fiat money, which was created through the transformation of labour, is made available in digital form and returned to the original creator almost without deduction.
In 2009, Satoshi Nakamoto started a revolution by creating an alternative decentralized monetary system disconnected from existing power structures. This was perhaps only a first step on the road to global restructuring. Further markets and systems will follow. Trade, corporations, interest groups and communities, and ultimately governments and other grassroots democratic processes will start to decentralize and can achieve emancipation from existing power structures.
The effects cannot even be roughly estimated today. Certainly the optimistic ideas will bring just as many setbacks in the development of a decentralised society — but dreaming is allowed, or?