Satoshi Nakamoto vs Centralized Blockchains: How Did We Get Here?

As the world changes, so do its driving forces. When the war was the most universal language between the kingdoms, the arsenal, the weaponry was the main focus of engineers and scientists. And when the world realized the economy and prosperity would make a lot better medium, they shifted their attention to financial technology.

A lot has changed since the initial barter. We incorporated precious metals, started using fiat money, began to invest in various assets. And the proliferation of the internet accelerated that process to an unprecedented extent. Now, the e-wallets, online payments, and digital currencies are ruling the world economy.

Among those above-mentioned inventions, probably the digital currencies have filled the biggest part of the stage. Since their A-Lister Bitcoin and blockchain were introduced in 2008, this technology has taken some quite dramatic turns. After a period of the initial denial, people quickly realized that cryptos and blockchain could be actually used for many purposes.

The difference in Blockchain Opinions

But not everyone shared the same outlook on a blockchain. Sure, many private enterprises jumped at it in hopes of overcoming various financial restrictions posed by the government, however, others thought it was a tool for financial manipulation (for its volatility)as well as the terrorist funding and money laundering.

This second group, mostly consisting of the world governments, took three vague stages in their crypto-attitudes - while some still haven’t moved from the first stage: the first stage is total neglect. The governments didn’t care about cryptocurrencies and didn’t even think it would achieve anything significant in the not-too-distant future.

This allowed the crypto exchanges and businesses to roll out their promotional offerings. One particular promotion probably every crypto business has used or has thought about using is Initial Coin Offering (ICO). ICOs are bonus gifts in a form of cryptocurrency for the newcomers to the platform. And the enterprises gave out hundreds of millions of cryptos in these programs. 

However, there were many enterprises that also scammed customers and extorted money from them. So, just like they always do by restricting various enterprises and commercial entities like gambling operators, the governments began opposing blockchain in different forms - be it regulating, restricting, or outright banning it. This inflicted serious damage to the private enterprise, and especially developing markets. 

Centralized institutions opting for blockchain

Not too long after this shift, some governments saw real potential in blockchain and digital currencies. For example, China, which has always been one of the biggest adversaries of blockchain projects, became the biggest crypto mining market. Not only that, President Xi Jinping made explicit comments about making “greater effort” toward cryptocurrencies and blockchain that lets China gain upper hand over its adversaries.

Another pretty interesting thing about blockchain adoption is the increasing number of corporations migrating to this decentralized ledger. Microsoft, IBM, Facebook, Samsung - these and many other companies have either rolled out their own blockchain platforms or joined the common partnerships with single blockchain.

And that’s somewhat counter-intuitive. You see, blockchain was supposed to be this peer-to-peer ledger where the users, the so-called “nodes”, constituted the only governing body. They decided whether a certain transaction was to be allowed or not, as well as how many tokens would be issued at a certain point and more. Other than them, there was no centralized body, let alone middlemen or third parties facilitating different types of relationships between the users.

That’s exactly the opposite of what is happening right now. If you take a look at Facebook and its Libra initiative, it’s pretty much a cryptocurrency governed by a corporation. And as the world has seen some privacy policy breaches with the company, the stakes are rising even higher with Libra’s announcement.

We didn’t see the whole picture

So, what’s happening? Did blockchain change its whole layout and became this “safe haven” for big corporations and governments? No, I don’t think that’s the case. In fact, quite the opposite is true: we didn’t actually see the whole scope of blockchain and its capabilities. We believed that it was a tool for hacker-types and profit-seekers who would use cryptocurrencies anonymously and get rich by investing in it.

Public vs. Private blockchain

However, as today’s developments show, there’s a lot more to blockchain than meets the eye. The blockchain we know from Bitcoin and other altcoins is actually called “public” blockchain. It’s purely a peer-to-peer system where the total strangers, who have no information about each other, can collaborate and exchange funds. It’s a trustless ledger without the need for middlemen.

The opposite is the case for private blockchains. Unlike the Bitcoin blockchain, not everyone can join this network. The corporations or other centralized entities, who issue the private blockchain, handpick the members of the system with a Know-Your-Customer procedure. This means that the system-runners can easily “trust” the blockchain members and be sure there are no actors with the intention to corrupt the ledger. 

Another difference, and advantage even, is the scalability factor. Private blockchains operate on much lower scales than the public ones. This leads to much faster transactions, and we’re talking about 1,000x difference in speed. That’s why they’re called hyperledgers.

And when it comes to updating the system, there’s no need to get permission from all the actors and users. The system already has one centralized unit that makes major decisions, and system updates are one of them. Conversely, if Bitcoin blockchain needs updating, some users might impede the process and lead it to deadlock.

Real advantages of private blockchain

But what about the real advantages? Here are some: as it turns out, private blockchains are more commercially beneficial than the public ones. Despite the fact that enterprises closely monitor the whole system and its users, they don’t dictate blockchain how to operate - it does that autonomously.

And it can be beneficial to the external cooperations. For example, when several companies want to collaborate, they can use blockchain as a common environment, a “trustless” ground where none of the parties gives away too much information or power. They can only focus on what’s important to the deal and let blockchain do the rest automatically.

But there’s also a drawback with this system which works for both private and public blockchains. Depending on which type of blockchain you’re using, your data might be stored in some of the most peripheral blocks of the system and also intertwined with other adjacent blocks. Now, this is an advantage for information integrity and non-falsification, however, you’re losing “the right to be forgotten” and your actions are forever imprinted on the system.

Not as revolutionary as we thought

As this semi-centralization trend indicates, blockchain isn’t exactly doing what people expected from it: they believed that it would completely do away with centralized institutions and would “democratize” the means of exchange. 

Instead, crypto exchanges and blockchain enterprises are constantly hitting the roadblocks of government regulations, but perhaps more importantly, the competition from those centralized institutions. They’re increasingly migrating to blockchain ledger and even pushing their own cryptocurrencies.

In short, middlemen are not going anywhere, at least in the near future. Instead, we’ll be seeing more of regulated blockchain and crypto uses, as well as centralized digital platforms that take advantage of all the benefits of blockchain, while minimizing their possible shortcomings.