Why Cryptocurrencies Are Still Centralized and Why It's More Important Than Scalability
Today's news on SEC statement of warning for crypto exchanges just addresses the Big Fat
Elephant In The Room - centralized exchanges and centralization issue of cryptocurrencies.
Here are tha major challenges for cryptocurrencies today that need to be addressed in order of importance:
- Centralization issue (Decentralization of exchanges)
- Cybersecurity
- Ownership identification w/o revealing personal identity (in case transaction is sent to the wrong person/for refunds etc.)
- Transaction fees and speed of Tx's
- Point of entry barrier (still hard to buy/sell crypto today, as well to buy stuff with crypto)
- Scalability
- Interoperability
Let me briefly talk about major centralization challenges:
Exchanges
For cryptocurrencies to really become decentralized, they first and foremost need to have decentralized exchanges. When I first was acquainted with crypto, it boggled my mind how a decentralized system such as blockchain can use centralized exchanges. It's such an Achilles heel and the weakest point in the whole blockchain infrastructure.
Consensus
Second centralization issue is flaw in dominant PoW/PoS consensus. This is, however, is solved through Proof-of-Devotion consensus, which rewards those who can not only put tokens at stake but have a history of useful activity on the protocol (see Nebulas' PoD consensus through ranking mechanism).
Adaptability
Third centralization issue is adapatability of the protocol to changes. Many hard forks we observe today is the direct result of the lack of flexibility of protocols to meet the demands of some parts of the community without compromising the whole system.
Software/Hardware/Internet
Next step, is of course, decentralization of the whole internet, software and hardware infrastructure. But it's still too early to talk about it. This is the challenge for the later. 1st things 1st.
As you can see, scalability is on the 7th place in this list from my perspective. Yet what I personally observe is the major attention to scalability, and less attention for more important issues above it.
Please comment below and let me know what areas need to get addressed for crypto space to smoothly enter into the market.