It’s time to talk about decentralization as the structuring principle of blockchain and cryptocurrency.
Cryptocurrencies come in a wide variety of different coins and tokens, each with their own unique use-cases and functionality. There isn’t really a “coin to rule them all” yet, so there are many reasons to swap between these cryptos, depending on the user.
There are plenty of exchanges out there, with more popping up every day, so deciding where to go and who to trust can be difficult. The two main types of exchanges generally break down to whether or not they’re centralized, meaning whether they hold and manage your data and funds for you. Another popular term for this is ‘custodial’. While this seems nice and convenient on the surface, centralised solutions defeat the whole purpose of using cryptocurrencies in the first place. That’s why some non-custodial wallets offer intuitive decentralised swaps. Decentralization doesn’t have to be difficult.
Most people in the world don’t use a blockchain because they haven’t heard of it. Even when they have, it’s not exactly an easy topic to explain. It can be hard to understand what the point of blockchain is from outside the community. Even viewed from the inside, blockchain’s potential is a foggy landscape at best. The consequences of decentralisation can be confusing and double-edged. To understand the various ways it can help, you need to understand why help is needed in the first place.
The financial and technological worlds are built on data and trust. That trust gets consistently betrayed, but with no other direction to turn we continue participating in these systems. We are required from birth to have all our details recorded in databases that we never see, to memorize social security numbers that are tied to our financial existence, and to let third party companies hold onto our money to hand out at their discretion. But hey, it makes sense – it’s available and familiar, it’s organized and easy to keep track of. This is centralization, and it’s someone else’s job to keep it all centralized. Leaks, breaches, and defaults happen all the time, but that’s just inevitable with these kinds of systems.. right?
Decentralisation is like a dream no one remembers after waking up. The idea of real self-ownership and financial freedom is nice in the back of our heads, but the reality is too far off to really understand. Most of the time, it turns out to be more of an inconvenience than what we were doing before, so we think “maybe down the road”. Many blockchain proponents still have balances with centralized bank accounts, myself included. It’s hard to escape it.
However, there are countless benefits to using blockchain the way it was intended. Unlike physical land, there are no real borders to the internet, only centralised islands of access points and media coverage spread across the world. Blockchain has the potential to be the ocean that connects the islands. It facilitates community and growth without interference or the need for ‘trust’. But the original language of the blockchain is code and cryptography, so it can feel very isolating for someone without a lot of technical expertise.
That’s where services like MEW and others come in. They provide an interface that lets anyone access the blockchain in an intuitive way, and without leaving a single piece of data behind. No accounts or password necessary, only your own personal wallet that lets you explore and interact with anyone or anything, whenever you need to, and with no strings attached.
This is true decentralisation. When it comes to exchanges, using a centralized exchange takes a bit of the purpose out of why cryptocurrencies are being used in the first place. It’s like escaping prison to join the military. The heart is in the right place, but the reality is just as authoritarian.
The main idea is that with decentralised networks, there is no third party that validates network transactions – which means there is no gatekeeper that can dictate rules that might prevent you from using the service, and there is no central point of failure which can be used to ‘take out’ the entire network.
In practical terms, decentralisation removes barriers to entry and puts control into the hands of the network participants rather than a single governing body. A government can restrict citizen movements and rights, a bank can deny a loan or freeze funds, and a centralized service like Google or Facebook can change terms and impose any set of rules on the users. Decentralised tools aim to provide the same functions and services, but without the limitations and threats of centralised organisations.
DeFi is one of the most promising recent developments on Ethereum. Adding a decentralised structure to financial instruments makes them available for those who don’t have access to traditional banking –a significant part of the world’s population outside of North America, Western Europe and Australia.
Stablecoins – cryptocurrencies tied to the value of a fiat currency like the US Dollar – are an essential component of the DeFi environment. They offer many of the benefits of cryptocurrencies while counteracting the crypto market’s considerable volatility.
To get a better idea of the specific benefits of decentralised finance, read about MakerDAO MCD or Aave, DeFi applications integrated into the MEW wallet interface. DeFi allows anyone who owns ETH to take out a loan or earn interest without the necessity of applications, credit checks, excessive fees, or commitments. You can also make savings deposits to earn interest in your assets. It’s a good place to start to get a feel for what decentralisation can practically do for you, in your life.