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Is There Any Point to Crypto if it’s Not Decentralized?
Decentralization, where all users collectively retain control over a network — as opposed to one centralized party — is at the core of a lot that makes crypto, crypto. It’s both the idea and practice that empowers the average folk to have a say over their financial future.
As a concept, it’s so ingrained in crypto that it is almost impossible to envision crypto without it.
But what if crypto wasn’t decentralized? Would it be a lost cause, or is there a compromise — a middle ground?
In this feature, we explore both those scenarios.
Why is Decentralization a Big Deal?
Before crypto, decentralization was unheard of in money. Only governments and central banks issued and controlled the production and distribution of it. When cryptocurrency came, it turned that idea on its head by showing that money can exist without a powerful, central authority pulling the strings.
The trouble with governments getting to dictate how money works is it has resulted in a flawed model where swathes of people are excluded from the financial infrastructure — and one that the rest of the people don’t trust.
Decentralization of money, as with crypto, takes the economic and decision-making power from governments, central banks, and politicians and places it in the hands of everyday people. The regular person had never had such a level of financial autonomy before.
In crypto, the rules are governed by a computer code. Also, there aren’t gatekeepers; the rules apply to everyone, and everything is transparent.
Cryptocurrency adherents laud the decentralization property of cryptocurrencies for leveling the playing field.
Without it, crypto would lose a crucial part of what makes it a transformative, subversive alternative financial system.
The Case for Yes
But crypto can still have value, even if not decentralized.
One of the biggest strengths of cryptocurrencies is their limited supply. Currencies, such as Bitcoin, Litecoin, and Cardano have a finite supply of 21 million, 84 million, and 45 billion coins, respectively.
Other cryptocurrencies don’t have a finite supply, but they have a maximum supply. Ether’s (ETH) supply, for example, is not hard-capped, but the issuance of new coins is fixed at 1,600 ETH per day after the Merge update.
The scarcity created by these supply mechanisms makes cryptocurrencies effective hedges against inflation.
This trait, exemplified by Bitcoin, has earned them the name “digital gold,” since they can’t be printed out of thin air and hence don’t depreciate over time.
Cryptocurrencies are also hailed for their immutability, which is a property that makes it so that once a transaction goes on the blockchain, it can never be altered or deleted.
This feature preserves the integrity of cryptocurrencies by making sure no one can manipulate or delete transaction history, creating a financial system that people can trust.
Moreover, cryptocurrencies have unlocked a borderless way of sending and receiving money. Since there are no intermediaries, transactions are faster and cheaper. By contrast, traditional international money transfers involve insane fees — sometimes up to 6% when using a bank. Worse, they can take days, causing people to be stranded.
Cryptocurrencies offer a more affordable and swifter alternative, making for a financial system that’s more accessible and fair. Borderless transactions also empower individuals in countries with restrictive financial controls to carry out international trade.
The Case for No
But there’s also the case to be made that without decentralization, there’s no point to crypto. For many crypto diehards, if it’s not decentralized, the technology makes no sense. Here are arguments for why there’s no point to crypto if not decentralized.
Centralized Authority
The point of decentralization was so we wouldn’t have to rely on or place faith in centralized systems to make the decisions on our financial lives. Without decentralization, we go back to this dreadful option.
At that point, cryptocurrencies are stripped of their potential to empower individuals with economic autonomy and sovereignty and might as well be just another form of virtual currency.
No Resistance to Censorship
Decentralization is the basis on which cryptocurrencies resist censorship. If crypto is not decentralized, it exists at the mercy of governments, regulators, and other parties that aren’t entirely too happy with it.
Such entities would have carte blanche authority over crypto, probably manipulating it, freezing assets, or killing it altogether. Cryptocurrencies are supposed to offer individuals refuge from such whims. Remove decentralization, and it’s easy to careen back to this authoritarian state of affairs.
Endangering Inclusion
Decentralization takes crypto and decentralized finance (DeFi) to everyone, regardless of their social status. Anyone that has internet connectivity can access crypto products and start saving, lending for profit, trading, and so on.
The centralized finance system has locked out so many people. Just because crypto would have that label doesn’t necessarily mean things would be different then. If it’s not decentralized, financial access would once again only belong to those with certain means or privilege.
The End of Transparency
Crypto is radically transparent — and that’s due to decentralization. Users can not only independently verify all transactions on the blockchain, but they can also check out the transaction history of specific wallet addresses.
This sort of transparency not only roots out corruption, it also gives network participants interesting tidbits such as whale transactions that can sway the market one way or potential rug pulls from DeFi project founders.
Such an exceptional level of transparency in money is unique to crypto. When you remove decentralization, you lose it — and there’s no point anymore.
Final Thoughts
The idea of crypto sans decentralization is weird to think about — with it being at the heart of what crypto stands for and all. But crypto can still be valuable in such a scenario — such as by facilitating cross-border transactions and being a safe haven asset.
Still, without it, crypto would lose some of its revolutionary ideals — such as standing up to the financial establishment — that made it a household name. In such a case, it’s almost as if it would no longer make sense.
