Crypto and Blockchain must be decentralized to succeed in 2019?

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As we begin to look towards 2019, the crypto and blockchain industry is still seeking a solid understanding of its identity. In a sense, space could best be described as a chameleon, because its various properties and characteristics (such as consent mechanisms, data maintained in the chain, and in particular the level of decentralization), are to some extent malleable in so as to allow the customization of offers for a specific purpose.

This flexibility has served the sector well and has proved necessary in several situations in order to obtain the initial consent of the main stakeholders. Consider the following:

• It is difficult to imagine highly regulated institutions such as banks that rely on systems without authorization such as Bitcoin or Ethereum to manage AML / KYC data – at least at this point
• 2^ND Layering technologies such as Lightning Network introduce a degree of centralization for open systems, but this compromise is widely accepted to achieve the required throughput for certain processes

However, this tailor-made nature also creates confusion about the true vision and purpose of blockchain technology. This ambiguity did not hinder the bull market in late 2017-early 2018, but the subsequent descent placed it at the center of attention in 2019.

Answering this question will do a lot to finish the crypto-winter and create a sustainable recovery.

Do we need 100% decentralization?

Bitcoin has become important because it was the first decentralized cryptocurrency to function. Ten years after its birth, the network has never been compromised. This does not mean that it is devoid of holes and deviations – that is, the debate on Blocksize and the subsequent bifurcations of the network. However, this model has clear disadvantages – namely scalability, limited utility, a mining arms race and a high degree of energy inefficiency. To a large extent, Ethereum continues to face similar challenges. Furthermore, the distributed nature of the developers of each protocol, combined with the power of the miners, adds considerable friction to any attempt to make a significant upgrade to the network.

This raises the question of whether or not a purely decentralized system is desirable or whether a certain degree of centralization can be ideal. In other words, are users looking for decentralization in and of themselves? Or, they are just looking for a specific utility, like having better control over their personal data, being able to send money (in any currency) to anyone in the world, and they see a partially decentralized system as a better way to reach this goal.

This debate is particularly important as many investors and foreign exchange traders are trying to move towards decentralized exchanges, mainly for ideological reasons, despite they will introduce more latency, limited trading pairs and possibly higher transaction fees.

To answer this question, we must examine the very nature of decentralization, which is an operational model, but also an ideological state. The balance of power between these two parts in the minds of users will be crucial to predict the optimal degree of centralization for crypto in the future.

Because that's how it is? Because historically ideological affinity has been a low factor of adoption by mass users. Consider the adaptation of Geoffrey Moore from the Rogers bell curve in his book Crossing the ravine as a useful model for predicting the traditional adoption of a given technology. He eloquently advocates that there is a "chasm" between innovators and early adopters on the one hand, and early majority, late majority and laggard from the other.

According to Moore, the initial set of customers for any product consists primarily of innovators and early adopters. These are groups that see the predominant potential in a given technology and are willing to forgive limited performance, buggy software, or certain functionality challenges. Looking at the cryptography market, Innovators and Early Adopters are willing to accept the risk of losing control over their private keys and their cryptographic resources, or perhaps they have their identity stolen in a "self-sufficient" system and forced to start over.

Unfortunately, the Chasm, as described by the model, focuses on the transition from Early Adopters to Early Majority. Unlike the first customer segments, the first majority tends to be composed of pragmatists who care about the quality and reliability of the product and its supporting infrastructure. These are users who will be less willing to forgive these shortcomings, especially if they suffer from their finances.

What does this mean for crypto? In practice, it means that users want things like:

• The possibility of recovering your personal data if their identities are stolen
• A way to reverse a transaction that was sent by mistake

But even more than that, they want a door on which to knock or a phone number to call in case of problems.

To overcome this "chasm", developers will have to focus on resolving real challenges for users and avoid being too dogmatic about pure decentralization. If some centralization can help with the throughput of a payment system, it can help to provide reliable execution environments for highly sensitive sectors and processes, or it can facilitate the transmission of regulated data, they should continue to be adopted.

Furthermore, obtaining greater clarity on this aspect will generate dividends in the form of a better explanation of the use cases for some cryptographic assets (better defining their demand and their main properties). This will help the valuation models, assist in the introduction of new investors in the space and hopefully, and especially in the adoption by users of blockchain-based programs and applications.

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As we begin to look towards 2019, the crypto and blockchain industry is still seeking a solid understanding of its identity. In a sense, space could best be described as a chameleon, because its various properties and characteristics (such as consent mechanisms, data maintained in the chain, and in particular the level of decentralization), are to some extent malleable in so as to allow the customization of offers for a specific purpose.

This flexibility has served the sector well and has proved necessary in several situations in order to obtain the initial consent of the main stakeholders. Consider the following:

• It is difficult to imagine highly regulated institutions such as banks that rely on systems without authorization such as Bitcoin or Ethereum to manage AML / KYC data – at least at this point
• 2^ND Layering technologies such as Lightning Network introduce a degree of centralization for open systems, but this compromise is widely accepted to achieve the required throughput for certain processes

However, this tailor-made nature also creates confusion about the true vision and purpose of blockchain technology. This ambiguity did not hinder the bull market in late 2017-early 2018, but the subsequent descent placed it at the center of attention in 2019.

Answering this question will do a lot to finish the crypto-winter and create a sustainable recovery.

Do we need 100% decentralization?

Bitcoin has become important because it was the first decentralized cryptocurrency to function. Ten years after its birth, the network has never been compromised. This does not mean that it is devoid of holes and deviations – that is, the debate on Blocksize and the subsequent bifurcations of the network. However, this model has clear disadvantages – namely scalability, limited utility, a mining arms race and a high degree of energy inefficiency. To a large extent, Ethereum continues to face similar challenges. Furthermore, the distributed nature of the developers of each protocol, combined with the power of the miners, adds considerable friction to any attempt to make a significant upgrade to the network.

This raises the question of whether or not a purely decentralized system is desirable or whether a certain degree of centralization can be ideal. In other words, are users looking for decentralization in and of themselves? Or, they are just looking for a specific utility, like having better control over their personal data, being able to send money (in any currency) to anyone in the world, and they see a partially decentralized system as a better way to reach this goal.

This debate is particularly important as many investors and foreign exchange traders are trying to move towards decentralized exchanges, mainly for ideological reasons, despite they will introduce more latency, limited trading pairs and possibly higher transaction fees.

To answer this question, we must examine the very nature of decentralization, which is an operational model, but also an ideological state. The balance of power between these two parts in the minds of users will be crucial to predict the optimal degree of centralization for crypto in the future.

Because that's how it is? Because historically ideological affinity has been a low factor of adoption by mass users. Consider the adaptation of Geoffrey Moore from the Rogers bell curve in his book Crossing the ravine as a useful model for predicting the traditional adoption of a given technology. He eloquently advocates that there is a "chasm" between innovators and early adopters on the one hand, and early majority, late majority and laggard from the other.

According to Moore, the initial set of customers for any product consists primarily of innovators and early adopters. These are groups that see the predominant potential in a given technology and are willing to forgive limited performance, buggy software, or certain functionality challenges. Looking at the cryptography market, Innovators and Early Adopters are willing to accept the risk of losing control over their private keys and their cryptographic resources, or perhaps they have their identity stolen in a "self-sufficient" system and forced to start over.

Unfortunately, the Chasm, as described by the model, focuses on the transition from Early Adopters to Early Majority. Unlike the first customer segments, the first majority tends to be composed of pragmatists who care about the quality and reliability of the product and its supporting infrastructure. These are users who will be less willing to forgive these shortcomings, especially if they suffer from their finances.

What does this mean for crypto? In practice, it means that users want things like:

• The possibility of recovering your personal data if their identities are stolen
• A way to reverse a transaction that was sent by mistake

But even more than that, they want a door on which to knock or a phone number to call in case of problems.

To overcome this "chasm", developers will have to focus on resolving real challenges for users and avoid being too dogmatic about pure decentralization. If some centralization can help with the throughput of a payment system, it can help to provide reliable execution environments for highly sensitive sectors and processes, or it can facilitate the transmission of regulated data, they should continue to be adopted.

Furthermore, obtaining greater clarity on this aspect will generate dividends in the form of a better explanation of the use cases for some cryptographic assets (better defining their demand and their main properties). This will help the valuation models, assist in the introduction of new investors in the space and hopefully, and especially in the adoption by users of blockchain-based programs and applications.