One of the main pillars of cryptocurrencies and their Blockchain technology is the decentralized nature of tokens. Bitcoin has been announced as a financial system that does not have central leadership and is therefore completely decentralized.
However, this decentralization effort is not a black-and-white problem, more than an escalator that allows many cryptocurrencies to claim decentralization while being predominantly centralized and controlled.
A recent report found that only 16% of all cryptocurrencies are truly decentralized in the way Satoshi Nakamoto intended when he created Bitcoin. There are other questionable examples, such as XRP under Ripple Labs, but there is also a series of cryptocurrencies that are falsifying their decentralized nature.
The problem is, just like the exchanges that dominate the cryptocurrency space, there is this false belief in decentralization while behind the scenes, developers and other leaders are controlling the way these Blockchains operate. Being an emerging ecosystem supported by the notion of decentralization, this is problematic as it is built on a lie.
CryptoCompare, a cryptocurrency research firm, published its annual Cryptoasset taxonomy report and revealed that 84% of cryptocurrencies on the market are not really decentralized. Some were completely centralized or semi-decentralized.
It is a sign of the times that occur in the cryptocurrency market since things have changed a lot since Bitcoin was created as a challenge to the centralized banking system in the wake of the 2008 financial crisis.
Now, the trend is largely driven by the rapid growth of new utility tokens running on private servers. Only 9% of all utility tokens were found to be sufficiently decentralized. Cryptocurrencies that function primarily as a means of payment, such as Bitcoin, Litecoin, Stellar and others, are among the most decentralized types of cryptographic resources.
But there are also those that are well known for not being decentralized, such as XRP – and now also EOS which has shown that only 100 addresses contain 69 percent of the network's native tokens.
Problems with not being decentralized
Bitcoin and the rest of the emerging cryptocurrency market are still incredibly new, but its $ 20,000 rally has also made it very interesting, pushing it into the mainstream. This has led to a boom in new cryptocurrencies and blockchains under construction, but has also led to a desire for control.
Ripple Labs is one of these companies that has not avoided the centralized control of its tokens, wanting to be the master of XRP and where it can and can not be used. However, other companies have used decentralization as a point of sale, maintaining control over the business.
In reality, the world has moved enough where the direct need for decentralized tokens is not so pressing and in many respects has been achieved by the 16 percent that are considered fully decentralized.
Furthermore, those that are considered fully decentralized are either well regarded or have been around long enough to be considered stable and secure.
But those coins that are entering the market with little more than a dream and a carte blanche, arising from decentralization when clearly not present, are causing a fictitious trap.
Honesty and integrity
The principle underlying decentralization is obviously important and large in the cryptocurrency space, but it does not necessarily have to be the only option. There is no problem with companies that issue centralized tokens if they believe they can do it properly, but you need to be more honest.
The cryptocurrency space is still full of scams and unknowns, as well as hidden programs and rapid enrichment schemes, so lying about decentralization is hurting even more the perception of this emerging space as much as the big hacks on trade.