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CZ on Centralization Vs. Decentralization (2022)

2022-10-09

This is an old, recurring topic, as old as crypto itself. Inevitably, I get asked about it in every AMA session I do. 

It’s also a topic I think about often and have on more than one occasion, shared my views such as in this blog post from 2019.

Three years on, my views remain pretty much the same but the added time has given me the opportunity to add new depth and dimension to my thinking about this important topic.

In essence, I believe the first thing to understand is that decentralization is not binary, and not single-dimension. There are multiple aspects to decentralization. Every aspect is a gradient scale, not simply black-and-white.

It is also important to remember that decentralization is a means to the goal, not the goal itself. The goal is freedom, security, and ease of use.

Many people may not agree with the above statement. I will explain why.

What is decentralization?

You may hear people say “not your keys, not your coins”. These people tend to define decentralization as holding your own private keys. In this regard, TrustWallet (a Binance portfolio company) is decentralized. Binance.com is centralized. This is a fine view.

You may hear people say “there are too few nodes or validators, so you are centralized”. While it is true the lower the number, the more centralized a blockchain becomes, there is no absolute number as a benchmark that everyone agrees on. It’s a gradient scale.

You may hear people say “bitcoin mining is too centralized because the top 2 or 3 mining pools control more than 51% of the hash power”. This is also true and is often used as a counter-argument by people defending POS blockchains.

You may hear people say “Ethereum is centralized because Vitalik can heavily influence its direction.” This has truth to it. Blockchains with clearly associated founders have this drawback. Bitcoin is more decentralized in this regard. 

In Ethereum’s defense, it has been forked a few times already too. 

BNB Chain is often associated with me (CZ), but I am far less involved in the technical developments of BNB chain and its ever-growing ecosystem. Again, it’s not absolute, but a gradient scale.

You may hear people say “bitcoin is centralized because a few addresses hold a large number of coins.” Again, this is true to an extent. Dogecoin is even worse in this regard. One top address holds 30% of the total supply, and the top 20 addresses hold more than 50%. Like the validators, there is not an absolute number as a benchmark that everyone agrees on. It’s a gradient scale.

I can go on and on. But I hope you see that decentralization has many different aspects to it. It’s often contextual and nuanced and I hope you start the look past the binary nature of the initial argument.

Why decentralize?

Because we don’t want a few centralized entities to have unlimited power over us, charge us exorbitant fees, control how we spend our after-tax money, etc. We want to give power, control and freedom to the people.

People want the freedom to transact, securely, with ease, and with low fees.

Decentralization is a means to achieve the above and it will take time, collaboration and the trust of different groups.

Also, we belong to such a young industry, we are building the future a day at a time and 

taking giant leaps forward may not always produce the best results. What we do has to be in step with the rest of the ecosystem.

As an example, with the tools available today, most people are not able to secure their own wallets. The details of this are beyond the scope of this article but needless to say, there are multiple hurdles we must solve for that decentralized future to take shape. See Keep Your Crypto #SAFU (CZ’s Tips)

Between being decentralized and potentially losing your coins, or using a centralized service that keeps your coins, most people today still choose to use a centralized exchange. That’s why CEXs are more popular today. Centralized exchanges provide an incremental step for users to access crypto and can act as a bridge between centralized and decentralized systems.

Conclusion

Having said all that. I/We are a big proponent of decentralization. At Binance, we believe in taking incremental steps as well as providing users with options for all available tools. Binance invests heavily in the development of both CEX and DeFi solutions and we will continue to be advocates for a future where freedom and security can go hand in hand.

Check out this and other insights from CZ on our blog here and you can follow CZ on twitter here.

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