The ‘Centralization Era’ in Cryptocurrency Has Come to an End?
When you draw a direct line from Mt. Gox to Voyager Digital, Celsius Network, and now FTX, you can see how the cryptocurrency industry’s most significant challenges are generally caused by the collapse of corporations.
When we look back upon November 2022, we can conclude that this was the beginning of the end of the “Centralization Era” in the cryptocurrency world.
Consumers were offered an appealingly convenient way to invest in cryptocurrency via centralized cryptocurrency exchanges. On the other hand, the era of centralization also led to a disdain for the protection of consumers as well as huge meltdowns that have caused tens of millions of individuals and hundreds of billions of dollars’ worth of assets to suffer losses.
The dangers posed by market concentration are currently imparting a very difficult education to consumers. Mt. Gox, Voyager Digital, Celsius Network, and now FTX may all be connected to one another in a linear fashion through history. The conclusion that centralized institutions present a systemic risk to the cryptocurrency ecosystem is one that cannot be avoided. It is way past time for the crypto community as a whole to band together and demand an improvement.
In response to the economic crisis that occurred in 2008, the concept of genuine individual ownership and self-sovereignty served as the basis for the creation of crypto. It was designed to be unique, with users having control over their own wallets and being able to conduct transactions without the need for a middleman.
Since its inception, the guiding principle behind Bitcoin has been to give us all the power to reclaim authority over our own monetary system. The old adage that “power corrupts” is one that has stood the test of time, and it is also true in the context of financial history. If you give someone influence over your finances, they are likely to take advantage of your trust in them. This dynamic occurs in the world of cryptocurrency, specifically between self-custodians and centralized custodians.
It is about time that we went back to the beginnings of cryptography, which is what initially drew us all together.
At Ethos.io, we have been advocates of decentralization and self-custody for a considerable amount of time. In 2017, we built a decentralized cryptocurrency wallet that attracted more than 100,000 users. Subsequently, we were asked to assist in the construction of the payment and blockchain rails for Voyager, a centralized cryptocurrency broker that attracted one million customers.
We eventually parted ways with Voyager as a result of the cultural differences between us and the management, who insisted on pursuing a centralized strategy to grow their AUM (assets under management). In the end, these funds were loaned out to Three Arrows Capital, which ultimately led to a speedy bankruptcy filing for Voyager.
Users of both Voyager and FTX have, alas, had to find out the hard way that the digital assets stored in their accounts on both platforms are in no way “theirs,” as the phrase is commonly used. Customers are typically seen as “unsecured debtors” by centralized exchanges and brokers since their funds are frequently mixed together in omnibus wallets. Voyager depositors have seen management, staff, lawyers, and bankers deplete business capital resources while their cryptocurrency remains locked up in the process of filing for bankruptcy.
It is incredible how often the actions of just one individual can affect the financial situations of millions of other people. This is the complete antithesis of how crypto should operate, which is one of the reasons why the era of centralization has been fraught with danger. This age must eventually come to a close.
The period of decentralization is the only path that can possibly lead to success in the future. The cryptocurrency industry needs to get back to its roots and wrest control of the industry away from unscrupulous institutions who have misused their positions of power and influence.
In the past five years, there have been a number of technological advancements that have the potential to lay the groundwork for a robust, safe, and equitable decentralized economy. Trading platforms that are decentralized hold the promise of numerous advantages over those that are centralized, including the absence of counter-party risk, on-chain settlement, and transparency. It is utterly impossible to engage in competition with one’s own customers.
A decentralized finance (DeFi) economy that is properly established and maintained will serve the interests of both customers and operators, not to mention it will give embedded consumer safeguards, which is something that regulators are working toward achieving.
Work needs still be done. The co-creator of Ethereum, Vitilak Buterin, has written eloquently on the topic of the necessity of secure vaults in order to limit the chance of losing one’s keys. In order to make this a reality and put an end to the need of mnemonics and seed phrases, multi-party cryptography (MPC), layered security, and social guardians are all necessary components.
Once again, we have reached a crossroads where we, as a community, must go against the trend toward centralization. We have no choice but to stand up to the crooked CEOs who are trying to steal our money. We have no choice but to oppose the corporate opacity that has allowed dishonesty and recklessness to be rewarded with money from the customers.
It is imperative that we have the desire to get back to crypto’s roots and provide individuals the ability to reclaim ownership of what is properly theirs.
There will be no centralized power in the future. But we have to construct it.