How Decentralized and Centralized Protocols Converged to Create De-Centralized

Bridging the intersection between decentralized and centralized consensus blockchain environments to increase mass adoption.

The co-existence of decentralized and centralized ecosystems has sparked some uncomfortable conversations between centralized entities and web3 enthusiasts in recent times.

Aside from the market volatility issues, government regulation, and the influx of institutional players, the re-centralization of the web3 ecosystem has raised some concerns regarding data ownership, censorship, and the incentives provided by the web3 and blockchain ecosystem.

However, the scuffle of supremacy between decentralized and centralized institutions is an ongoing conversation that has resulted in blockchain industry experts, opinion leaders, and developers questioning the regulatory objectives and motives of world governments.

Therefore, there has been a lot of back-and-forth conversation on the subject, which has led to 4 thought-provoking questions outlined in this article.

Keep in mind that these questions are intended to stir up a new conversation around the current state of the industry and should be approached with an open mind.

Current state

Decentralized ecosystem: A web3 and blockchain permissionless environment with no central authority.

Centralized ecosystem: The web2.0 big tech institutions and traditional finance environments where there is central control and users’ information is controlled by the organization.

Proposed integrated solution

De-Centralized ecosystem: An integrated environment where decentralized and centralized ecosystems converge and co-exist to form a more holistic interoperate ecosystem.

Introduction

Distributed ledger technology (DLT) such as blockchain and web3 has witnessed immense adoption due to its radical disruption. Unlike the previous iteration of the internet, this adoption doesn’t come easy.

The early adopters went through hurdles, and thus, believe decentralization to be the ultimate objective, whereas some view decentralization as a means to increase freedom and security.

Therefore, the discussion on centralization and decentralization is relatively a recurring topic centered around security, freedom, and ease of use.

Consequently, new users are getting onboarded into the centralized web2.0 environment, where big tech companies harvest and commodify users’ data for financial benefits.

On the other hand, developers are transitioning into an open, trustless, permissionless, and censorship-resistant web3 and blockchain environment that is creating a creator’s economy.

We are witnessing digital transformation unfold before our eyes. It’s important to pay attention to how fragmented the environment is by identifying the potential middle ground for both to co-exist.

Bridging the gap between centralization and decentralization

Centralized ecosystem: The web2.0 big tech institutions and traditional finance environments where there is central control and users’ information is controlled by the organization.

Centralized exchanges (CEX) are bridging the gap by providing both centralized and decentralized services. For example, the Binance derivative exchange just announced Binance 2.0. The collaborative integration of Binance exchange with uniswap.

Uniswap is a decentralized exchange (DEX) and automated market maker (AMM). This new integration will enable Binance users to interact directly with UNISWAP to perform a decentralized transaction, also using Binance Smart Chain (BSC) and Binance Chain.

Furthermore, Coinbase, Binance, and Crypto.com also have decentralized no-custodial wallets. Crypto.com launched its Cronos mainnet, a decentralized blockchain protocol, and its non-custodial Defi wallet. Twitter integrates direct crypto payment and Instagram proposes the integration of NFT and many more.

Other web2.0 organizations are stepping one foot into the web3 ecosystem; the integration of Apple Pays into metamask wallet allows users to buy cryptocurrency, and Coinbase, Nifty Gateway users can purchase NFTs with their credit cards.

Other institutional players such as JPMorgan, Nike, Adidas, and Luis Vuitton are entering the web3 space, while McDonald’s and Walmart will be accepting Bitcoin as a form of payment via Lightning Network.

Lightning Network is a decentralized layer 2 network using smart contract functionality to interact with the bitcoin blockchain to enable instant payments across a network of participants.

Decentralized ecosystem: A web3 and blockchain permissionless environment with no central authority.

Fundamentally, the majority of blockchain and web3 enthusiasts have issues with the centralized entities coming into the decentralized ecosystem because of the fear of re-centralizing the ecosystem. Although some embrace this integration because of the belief it will increase onboarding and adoption rates.

Conversely, others are concerned about how the crypto space will be regulated and taxed by the government. Although some centralized gaming industries can’t grasp the idea of on-chain play-to-earn games because of the monopolized nature of their business model, others are criticizing the entire on-chain GameFi.

However, traditional centralized organizations still control a high number of audiences, which according to Metcalfe’s law of network effects plays a major role.

The influx of institutional investors adopting web3 and crypto serves a dual purpose; either it will re-centralize the ecosystem that will lead to mass adoption or provide an avenue for both to co-exist and interplay. Furthermore, it’s important to know that a handful of web3 websites and nodes are still running on Amazon’s web service infrastructure, which is a centralized service.

Conversely, some web3 opinion leaders are concerned that the increase in institutional participation and engagement will redirect the decentralized ecosystem users back to the centralized environment where the institution controls users’ data.

The proliferation of blockchain and web3 technology is becoming prevalent; hence the institutional demand increases; thus raising these questions:

1. To what extent can full decentralization be maintained?

   
   

2. How will regulation and the introduction of the CBDC affect the crypto ecosystem?

   
   

3. Can both decentralization and centralization environments converge and interplay?

   
   

4. Will bridging the intersections between decentralized and centralized environments lead to web3 and blockchain mass adoption?

De-Centralized ecosystem: An integrated environment where decentralized and centralized ecosystems converge and co-exist to form a more holistic interoperate ecosystem.

Answering these questions requires a fundamental understanding of both decentralization and centralization from the institutional, application, and blockchain protocols levels. One can only speculate based on assumption, the implications of centralized institutions, and decentralized consensus blockchain synchronicity.

In contrast, a decentralized blockchain entity from protocol to the application layers needs to provide an interoperable environment that is easy to navigate.

As stated by CZ, the CEO of Binance exchange on the current conversation about decentralization and centralization, that

“Many people think of decentralization as absolute; you are either decentralized or not. I think that in reality, there is a gradient scale from centralization to decentralized. Often, a better question is: how decentralized should we (exchanges, societies) be, now and in the future? If decentralization simply increases freedom but decreases security and ease-of-use, there is a point where it becomes a net negative and may not be worth it.”

The convergence of centralized and decentralized environments will ease the adoption process of the web3 ecosystem; however, it’s impossible to experience true decentralization from the application layers of the web3 and blockchain.

Conclusion

Bridging the intersection between decentralization and centralization in the blockchain ecosystem includes making the participatory and interactive experience more intuitive.

The simplification of the interfaces enhances the user’s experience and provides an inclusive environment while increasing onboarding processes.

The equitable distribution of the workload between centralized and decentralized protocols will reduce the total workload of distributed ledger technology.

Furthermore, the seamless transmission of data from off-chain to on-chain and vice visa will contribute immensely to bridging the communication gap.

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