Decentralized, open cryptocurrencies such as Bitcoin and Monero introduce possibilities that others are yet to conceive. Despite the liberating choice, freedom and power that such cryptocurrencies give individuals, the bigger picture for regulators and capitalist-minded people is the underlying technology, aka blockchain. As mentioned in a report published by the Swiss Federal Council in regards to blockchain regulation:
“While cryptocurrencies such as Bitcoin… often attract the most public attention in connection with blockchain/DLT, this report is primarily interested in the underlying technology, which is also the most relevant for future developments.”
Perhaps it is hard for people who have had control of the money supply to suddenly accept that there is a system which can essentially render their monopoly obsolete. Economists and powerful public figures have tried their best to stop this from happening. JP Morgan CEO, Jamie Dimon, made the following comment back in 2015 when asked about Bitcoin and cryptocurrencies:
“This is my personal opinion, there will be no real, non-controlled currency in the world… There will be no currency that gets around government controls. The technology will be used. It may be used to transport currency, but it will be US dollars.” Jamie Dimon, Fortune Global Forum, 2015
Interestingly, while some governments have attempted to obstruct the path of decentralized cryptocurrencies, conveying the idea that it is unsafe, a number of countries and now even Facebook are busy developing their own centralized alternatives.
To give clarity, public decentralized cryptocurrencies are systems that empower the individual – putting an end to the monopoly on money creation. If the events after 2008 were not enough to show that centralized money creation is a dangerous idea, then perhaps the next financial crisis will. As commented by the renowned Bitcoin advocate Andreas Antonopoulos in an interview with Bitcoin Magazine:
“I think that, fundamentally, nationally issued cryptocurrencies are business-as-usual. They don’t change the fundamental problem. The fundamental problem is centralized control and no government is going to issue a cryptocurrency that is not centralized. So they are just moving around the deck chairs.”
The dark side of convenience
Decentralized cryptocurrencies were a powerful step forward in empowering individuals to break free from existing financial systems, which offer little transparency, accountability or choice. A paradoxical system that is powered by debt – reaching new heights every year – while at the same time devaluing individual’s purchasing power through inflation.
Though like any system, decentralized cryptocurrencies are not perfect. Bitcoin, for example, can be – if used incorrectly – used to monitor financial activities on a level never before seen.
The same publicly accessible transaction history (ledger) which provides many benefits from a transparency perspective can also be used to track transactions, locations, amounts and the forwarding address history. This was made possible through the introduction of centralized exchanges and custodial wallets – such as Coinbase and Bitfinex- that are linked to a person’s identity due to know-your-customer (KYC) and anti-money-laundering (AML) laws.
Unfortunately, many people do not seem to care for the greater good. Due to convenience and lack of knowledge, people end up using and supporting these compromised third party, centralized operators. On the positive side, due to the same centralized service providers being hacked, people are starting to understand that placing a decentralized cryptocurrency on a centralized exchange is in some ways like placing solar panels in a power station instead of your own roof – it defeats the entire point.
To ensure the benefits provided by decentralized cryptocurrencies are not tainted or lost, we need to focus on services or tools that respect the innate decentralized, open principles (see an article discussing the benefits of owning your private keys).
Decentralized wallets and exchanges
There are a few options when it comes to decentralized exchanges and non-custodial wallets. Bisq is a great example of an open-source, decentralized exchange as it allows people to buy, sell, exchange cryptocurrencies and fiat in a peer-to-peer (P2P) manner. As mentioned on their website:
“Satoshi Nakamoto created Bitcoin with the motivation to solve the problems of centralized payment systems so it seems inconsistent that centralized Bitcoin exchanges are still the primary way to acquire bitcoins. In our opinion the dominance and vulnerability of centralized exchanges is the Achilles heel in the current Bitcoin ecosystem.”
The Bisq platform stores all your information locally. You can connect with other members and trade directly without having to go through an intermediary. Their core principles outline the importance of such decentralized tools.
“We have developed a solution which is based on pure P2P infrastructure. While the transfer of national currency requires the involvement of traditional payment channels like banks or payment processors, we are not dependent on any particular one. Their role is limited to what it should be: They transfer national currency. No power of censoring, confiscating, monitoring or controlling your financial interaction.”
Another solution has been provided by the Abra wallet. While the wallet is not open-source, it does allow you to hold onto your private keys. People can use their wallet to purchase over 30 cryptocurrencies. However, it is important to note that the only ones you truly own are Bitcoin, Litecoin and Bitcoin Cash. The rest are hedged against Bitcoin and only beneficial from an investment perspective.
Abra offers people in the U.S. and the Philippines the ability to link a bank account in order to make deposits and withdraws. The same goes for Europe, except withdrawals are yet added. For everyone else, they can simply use a Visa or Mastercard (debit or credit card) to make deposits. The downside is that users will need to submit identity verification information before getting access to the bank account or credit card funding options. The wallet also supports deposits and withdraws in the form of Bitcoin, Litecoin and Bitcoin Cash.
This is an important aspect which makes it easier for the average person to join the crypto-sphere.
What can we learn?
The power of decentralized cryptocurrencies comes when they are used the same way they are designed. Any change to a decentralized digital currency’s environment will ultimately damage its progress. Just like a plant requires the correct minerals, sunlight and care, decentralized cryptocurrencies too need the right environment to thrive.
So far most of the damage caused to cryptocurrencies has been inflicted by third-party operators, human errors – the same issues which Bitcoin and other cryptocurrencies were supposed to remove. Until recently, choices for the average user lacking the knowledge to easily take part was limited. Hopefully with the introduction of easy to use decentralized systems and an increase in available options, people will start to move away from centralized solutions and use cryptocurrencies as they were intended.