Power corrupts , absolute power corrupts absolutely.
Unlike traditional financial markets where everything is built upon real-world economics, crypto, at its current stage is built upon nothing but future expectations. We buy bitcoin because we believe one-day bitcoin will fulfill the role of internet-native world reserve money. We buy, well….BTT because we believe wiz-kid Justin Sun envisioned a billion device will be willingly adopting bit-torrent and use BTT as torrent money, or you doesn’t care this BS at all but believe you can sell it 10 times higher than the price you paid for it in less than a week(which is now a fact btw, congratulations to the seller who were just 10 times richer and buyers who may be a bit poorer but compensated with hopium!)
Crypto is striving very hard to become money. However, economic common sense should tell you that money itself is not valuable but a carrier of value. Therefore a money market is equivalently a zero-sum derivative market, As one trades against each other since they have different expectations about how much value it can represent but not the value itself.
What we are building now, is all centric around that one-day blockchain will create hard and sound value carrier though…well .. many buzzwords and most importantly, decentralization of power and money! To take the wheel from those who manipulate our lives, to Long Bitcoin and short the bankers! To be honest, this is a revolution and a vision I am totally sold!
However, there are a few tiny elements which could have barred us towards such a bright future. It’s a delicate combination of the following characters, not one but a few hardcoded observations and concepts tangled and working against one other so to prevent crypto from ever achieving its purpose. below.
1st, the money market is a zero-sum game as one trades on the expectation of the value that it may represent, but not the value itself.
2nd, the total supply of crypto is finite and fixed. It’s a character of hard money yet it is also fatal given nowadays the most dominant player charge fees not in Fiat but crypto, which inevitably routs cryptos to the treasuries of a handful exchanges.
So combining about points into one coherent sentence:
Because we won’t stop wanting to become rich quick therefore the allure to trade crypto cannot be resisted, yet as collective sum we are not winning nor losing against one other and the only guaranteed winner are those who charge fees on our trades, but since they only take fees in the form of hard-finite sound money it is almost inevitable that all hard&sound money ends in the hands of those who charge fees.
And from whence return the glorious centralization of power and money.
Now, this put us in a very awkward position, Bitcoin and crypto were supposed to end centralization of power, not to transfer the power from one group to another!! For f#$k sake!
But the allure to trade will draw us to the best service provider on the market, those who offer superior liquidity, iron-clad security, and best customer service will keep snowballing itself by attracting more and more users. And the better they become, the more people trade on its platform, the more bitcoin they will collect from a finite supply, the more centralized this ecosystem will become and the more powerful they will be, all at the same time, they again will become the single point of failure.
First talking about power, Binance for example, same as many other exchanges who got fat during the last bull(we fed them). Their VC leg is becoming one of the most influential players and the most powerful one, whoever got into their launchpad program is directly exposed 10 million users on their platform, that could be half of all population active in the crypto sphere. A spot every team is dying for, yet the power of deciding who got launched relies on a single few handful of people. And they have all the power to pick whichever project that fits their vision and have such tremendous influence on what the future landscape will be.
This put us again in the hands of tyrants, benevolent or not. Whatever their true vision is, how excellent or benevolent they have been doing is irrelevant. The relevant effects, however, is that they are becoming The single point of failure. As counter-intuitive it can get, the better job they do, the more centralized crypto ecology will become, Money begets money.
Secondly talking about dangers of centralization of money, take bitcoin for example, the price discovery is driven by supply and demand (or the wrestling between the “consensus” of how much it worth). Exchange can not set how much it worth directly, but they can manipulate the price by adjusting the total supply of it. All crypto flows to them anyway. This is even worse than banks, You give them your money, they pick where to invest it. your money in the bank is legally still yours, but the fees you paid to exchanges are not yours anymore.
Whether they try to manipulate the price or not is again, not a relevant subject of discussion, however, such centralization of wealth is a direct contradiction to the entire idealism of decentralization. But they can use this wealth for good right? Absolutely! Please see point Nr 1 for a how-to-for-dummies guide about exchanging centralized wealth for power.
Regardless where this ends up, I still believe bitcoin and crypto can be a very meaningful endeavor within our lifetime towards more freedom.
But not through forceful expansionism.
Live, and let live.
Always remember that power corrupts, Absolute power corrupts absolutely.
A path towards crypto’s inevitable centralization. was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.