The premise of Bitcoin that attracts many people remains the same: Bitcoin features support its decentralized character, where direction, purpose and price are determined by market mechanisms and not a handful of people for their own group’s goals and advantages. However, is that right?
Decentralized (as an adjective), related to the meaning of decentralization. According to the Merriam-Webster dictionary, it refers to the distribution of functions and power. Decentralization has a role as the main theme of Bitcoin, which seeks to provide alternative financial systems to the public.
Contrary to the traditional currency system controlled by bankers, Bitcoin returns power over money and finance, to the people with a combination of cryptographic techniques, computers and the Internet network. Satoshi Nakamoto, the creator of Bitcoin, discarded the single control function and replaced it with a computer consensus model.
The open Bitcoin system allows anyone to come and go whenever they want. In this era, Bitcoin is becoming increasingly easy to obtain. The Bitcoin market is available in almost all countries and anyone can buy Bitcoin at any nominal value.
Centralized Bitcoin Software Development
A recent study by Bitmex should open everyone’s eyes. Bitmex mentioned that Bitcoin is currently being developed not by thousands of people, not by everyone, but by a group of elite software developers.
These elites are backed by companies or organizations engaged in blockchain and crypto assets, such as Blockstream and the MIT Digital Currency Initiative (MIT DCI). Square Crypto, Chaincode Labs, Lightning Labs and the crypto asset market, including BitMex itself and Bitfinex are participating in funding Bitcoin code contributors.
The salary of a software developer for a project as large as Bitcoin which has a market capitalization of more than US $ 100 billion is of course quite large.
However, Blockstream is able to allocate up to 8 code writers to the Bitcoin project. Put each developer is paid US $ 100 thousand per year, then Blockstream must pay US $ 800 thousand per year!
With the developer paying nearly a million dollars, isn’t it logical that we suspect Blockstream and other companies have a strong interest in the direction of developing Bitcoin? What if in the end Bitcoin was conditioned in such a way as to provide competitive advantages to those companies?
If centralization occurs in the pattern of Bitcoin software development, it is appropriate to ask, does Bitcoin still hold the title as a decentralized system?
It is common knowledge that since the advent of the ASIC machine, Bitcoin is no longer friendly to small miners. Bitcoin mining has become an industry with millions of dollars of investment since the price of Bitcoin has shot up, which peaked at the end of 2017.
Home miners with one or two ASIC machines clearly cannot compete with tycoons who own Bitcoin mining infrastructure with thousands or even hundreds of thousands of ASIC machines. Thus, the benefits of Bitcoin mining rewards are of course given to rent owners.
The price of Bitcoin that has been fluctuating lately has made little players out of business. The Coin Republic published a controversial article, which said that small miners not only contributed, but also put additional pressure on the Bitcoin ecosystem.
The Bitcoin mine in the United States has the same fate. Bitcoin prices have continued to be depressed since Friday, March 12, 2020, forcing the Bitcoin mine, Digital Farm to close down temporarily.
Miners with thin pockets are suspected to be very sensitive to Bitcoin price fluctuations, so they are forced to sell their Bitcoin at prices that are still reasonable, rather than storing Bitcoin for a long time.
Well, the sale of Bitcoin to be exchanged for fiat money naturally undermines the price of Bitcoin on the market, which makes many people think that Bitcoin would be better if controlled by large miners.
Large miners with thick pockets are not price sensitive. They have enough money to run their operations for a long time without having to cash their Bitcoin in the crypto asset market.
Centralized markets and businesses
Bitcoin and other crypto currencies are expected to bring fresh air to startups and even individuals, to contribute more and participate in an economic system that is said to be “decentralized”.
In fact, the 99 percent crypto asset markets are profit-oriented companies, managed according to their interests. The crypto asset business requires extraordinarily expensive investment and licensing, beyond the reach of the majority of people.
Centralized markets and businesses, inevitably become the reincarnation of bankers in the traditional financial system, which uniquely wants to be avoided by Bitcoin!
Centralized Bitcoin Ownership
The impact of the mining, market and Bitcoin-based business monopoly is the narrowing of Bitcoin ownership to several super-rich people and early adopters, including Satoshi Nakamoto. He is suspected of having more or less a million Bitcoins in his Bitcoin wallet.
Bitcoin ownership controlled by a small group of people is very dangerous. This article from Loper-os clearly illustrates what happens if Satoshi or the “whales” withdraw their Bitcoin.
When the market is flooded with lots of Bitcoin, prices will plunge freely. When the price of Bitcoin collapses, it is believed that more people sell Bitcoin, which in the end the price of Bitcoin will fall deeper. In the end, the price of bitcoin will return to normal: zero.
Satoshi Nakamoto’s vision of creating a financial system for everyone seems to be far from expectations. The decentralized financial model has proven to be insufficient to be implemented using mere cryptographic and computer techniques.
Economic, business and human behavior aspects need to be considered to create a purely decentralized financial system.