What's the point of Centralized Services in Crypto? | Logical Logs #19
Watch out, they want their profits and you are the product
Bitcoin Block 758,903
000000000000000000023a3faf11288272b00bc7ddee729ca471de5d522ef2f5The internet in its early days was sturdy, slow and not user-friendly. This translated into a userbase that was sophisticated and technical enough to interact with what the internet was capable of. It wasn’t ready for mainstream. Hence, any company capable of providing these services to fit the broader public gained traction and were able to make their mark in history. The likes of Amazon, Google, Microsoft and Facebook are commemorated for their achievements as they were able to remove the clutter and appeal to the anyone, even the generation before the internet. The kept every technical aspect behind the hood and took all of the painstaking work in the company’s control presenting the user with a finished product, revolutionary as it could be.
The cryptocurrency ecosystem is also in that phase, things are slow, inefficient and lack stability and are not scalable. Hence we see big corporations such as Circle, Blackrock, VISA and large banks entering into the cryptospace to somehow get their fair share of the pie or get control of the whole pie itself. Isn’t this opposite to what crypto was meant for? Decentralization, censorship-resistance, freedom from unnecessary control and lacking an intermediary, these are the ethos that were to be upheld. These institutions want control, power, dominance and most of all the profits from the blockchain ecosystem. It has turned into the new, shiny thing that attracts a generation with emerging ideas about how to emancipate themselves form the government. Now obviously, most of us don’t know what we are doing and we need a clear roadmap which is somewhat impossible to build.
These big corporations benefit from this confusion and tend to bring forth a product that streamlines operations on the blockchain. There must be a catch though. That is decentralization, the fundamental objective on which a blockchain exists. So why accept them, why not outright discourage their use? The community surely stands up, doesn’t it? Well, we have to consider the fact that a technology gains mainstream adoption only when the public starts using it. They are those people who have nothing to do with how something works in the back end and are concerned only with the efficiency of the service. It is your mom, grand-dad or old guys who have nothing to do with supporting a movement and just want to get the next payment sent successfully. These are the people we’re dealing with and you promise something shiny, they’ll come rushing towards it.
The oldest and most prominent form of such a centralized involvement is the entry of exchanges. Each exchange promises secure custody and seamless exchange of cryptocurrencies. But the problem arises when these exchanges have to comply with governmental regulations to function in their respective areas. These regulations can be as lethal as blocking certain transactions or funds that belong to entities not liked by that particular government. What is the point of owning cryptocurrencies on an exchange when it is on a ledger controlled by it? What’s left making it distinct from the bank? Just a false sense of censorship resistance. The tussle with sanction compliance also continues blocking Russian users and complying with sanctions. The supposedly crypto-friendly company Chainalysis released its guidelines for the exact same reason: exchange compliance. If you have to subject cryptocurrencies with the same entities it was envisioned to be free from, what’s the purpose. With KYC procedures, transaction monitoring and blocking IP addresses the exchanges have left noting to satisfy the VCs behind them and the jurisdictions they function in. Obviously they are centralized so their progress depends on a defined set of people. They can easily be influenced and have to comply to stay profitable. However, the statements of Coinbase CEO, Brian Armstrong, and Kraken CEO, Jesse Powell, cannot be neglected who stand true to the crypto ethos and stand against any unjust regulation.
This rabbit hole goes more deep when you get into how the second largest stablecoin, the on ramp for most users into crypto has serious ties with companies from crypto was meant to break away from. The spotlight is on none other that Circle, the company behind USDC. With a market cap of more than $45 Bn and its availability on more than 40 blockchains, this is some serious shit and its buying up of government debt surely makes it a darling for the US government. The CEO has ties with the WEF and speaking at the WEF’s annual conference in Davos about the powers of programmable money and the partnership of public and private companies to develop Central Bank backed stable coins makes him the face for stablecoins. The FED partnering with Circle raises some serious questions about what Satoshi envisioned for cryptocurrency. A digital token controlled by the Central Bank and the dollar backing it, what is going on? Read more about the malevolence of a CBDC.
Then comes BlackRock, which controls much of your finances than you think. With its partnership with Coinbase providing a gateway to institutional investors, it has left no stone unturned when it comes to establishing its dominance over every industry. MakerDAO, a decentralized protocol behind the stablecoin DAI is also backed by USDC stablecoin. This is serious as Circle, a centralized organization, can freeze USDC backing DAI with a flick of a switch like it did with addresses involved in the Tornado Cash saga.
The IMF’s reports, the FATF’s regulations and the White House reports are all aiming for a single objecting: to take control of the governance process of most cryptocurrencies. Blockchains like Algorand is enthusiastic about their involvement. The formation of a Center Consortium for establishing a standard for stablecoins and determining the issuance and redemption of USDC puts all control in the hands of big corporations. The government will also not let these corporations run loose. Control, control and control!
Let’s face it, all fiat currencies will fail. Obviously, they’re backed by nothing. Just hollow promises. So, you have to protect your capital from the large institutions and governments. There is no doubt about the importance of centralized institutions in the crypto system. They are the ramp for new users coming in. What is necessary is that the crypto people spread education and awareness about the ethos of cryptocurrencies and develop technology to help their transition.
Fiat will fail, buy Bitcoin, the CEO of Circle says it himself.
Till next time.
Azeem, signing off.