Is Crypto Centralisation the Solution?

Published on Jan 22, 2022

The growing number of banks trading in cryptocurrencies is an important indicator. The positive reflection of this growth is admission of value, monetary tradable value at least. Regulatory frameworks are important in a number of situations, for example, avoiding fraudulent schemes like “hit-and-run”. However, the limit to which regulators should interfere or establish entry barriers for service provision and consumption is debatable. Being tradable assets, banks as treasurers and investors of course would take part if it is expected to generate gains.

The problem with “decentralised currencies” currently is two-fold:

  1. Decentralisation is actually weak, many blockchains are relatively easily centralised should actors have enough resources. This problem pertains to governance as well.
  2. A currency is not an asset, but practically most cryptocurrencies are assets.

Possibly this might suggest more efforts to further centralise “decentralised currencies”. Going this route, it is quite thinkable that the crypto game may well be controlled by some big players then the door gets closed except for enough consumption to generate required gains for providers. Much like social networks and search engines (centralised networks) for financial assets and financial services, which is the league of the banks to start with. Bear in mind that social networks and search engines did not gain market dominance through governmental regulations. Regulatory power is much more aggressive.

This is a negative outcome in the sense that decentralised finance should be exactly that “decentralised”, small players who mine, stake, provide credit, engage in trustless business models should be able to do that efficiently, generate revenue and be effective stakeholders in value-generation chains much as their bigger counterparts. Amassing computational or organisational resources to dominate network mining, issuing rights, etc. lead to down right firmer controls on financial markets coupled with pervasive controls once finance is linked to service provision, consumption and consumer behaviour. Moreover, the price of financial services which is supposed to decrease because of technology availability could easily become a factor to save operational cost for the service provider but not in decreasing service price.

However, having a huge amount of market value in the hands of clever investment strategies of big players is not a safe option to reduce or even manage financial risks for the numerous base of smaller investors, of which a considerable number are everyday life people exercising their varying skills to generate financial gains.

The solution to this dilemma in my opinion is massive decentralisation at the technical and the operational levels (structural and functional decentralisation) coupled with education. Governments usually do not tell their people that they would hold automation, artificial intelligence or autonomous vehicles technologies because they pose financial risks (less salaries, unmatched labour skills, etc.). Governments rather usually tell the people “up your skills” and “get educated” so you can have jobs (although this is doubtful on the medium to long run in the first place). The good thing about decentralisation and its technological, business and financial bearings is that the potential for learning and education is readily available. Both because of the eagerness to adopt and the high number of individuals and companies willing to engage as to increase adoption and grow the market.

In countries where credit and debit cards had been mainstream for decades, people may not think that in other countries where such cards are being newly adopted banks had to go to measures like “drop your Mac 20cm on the ground to fix” of the old days. As fraudsters found ways to trick people into giving their cards’ details and siphoned the funds, banks backed and in many instances instructed or aided by the governments rolled out educational campaigns. Measures included having pamphlets on residential building’s common walls in some cases in addition to televised advertisements and other measures. This of course took place after national marketing campaigns and regulations in place to promote bank cards. So education is not something out of the ordinary.

More importantly, it is important to note that governments should supposedly promote what empowers the people not the other way around.

This, however, equally puts pressure on the technology innovators and the crypto space. For the technology to take root it has to participate directly in creating value. That is, technologies, services and applications that contribute to economic value creations. The current state of affairs is that most of the cryptocurrencies’ market value is based on speculative assets, that is, tradable things that get value most of their value because trading itself. For NFTs (non-fungible tokens) you can easily have a mere image sold for USD200,000 for some reason. I wonder if any everyday life person will intelligibly realise the value in that or a business savvy either for that matter (they would be wrong if they do). If cryptocurrencies and CryptoTech are to deliver on their unrealised promises of decentralising “money”, decentralisation must yield intrinsic economic value. This is the fundamental importance and relevance of decentralisation, that is, democratising value generation, democratising the economic opportunity and empowering people to make accessible choices.

It is not illogical to think that banks, which took responsible parts in past economic crises and were bailed out by excessive taxpayer or governmental money, are to plan, implement and execute a model that is supposedly capable of reducing their market share. Assuming market is the absolute truth, this value placement is hardly right. Banks are big investors, creditors and treasurers already, their roles should not overlap to control value generation. This is a skewed picture to say the least. Whilst it is understandable that governments would like to deal with big corporations over which they have direct control, the job of government is not keeping the status quo in the sense that it is better than progress of which all aspects are not immediately known. But the government’s fundamental job is the reflection and empowerment of society including its individuals and organisations of different wealth, privilege and income levels.

Moreover, infinite growth presumptions have undoubtedly came to end. Potential fights over resources on the moon and beyond and escapes to live on Mars are not fanciful thoughts of the ultra-rich anymore. The way to grow is collectively rather than to concentrate wealth and value generation means in the hands of the few (for more on this topic, please see the upcoming Artificial Intelligence Fortuna).

Decentralisation should allow for more overall efficient technologies and business models and it should be large-scale and open. In other words, decentralising value creation. This is one very specific reason we started Atomflow.