Cryptocurrency: Filled With Intermediaries
The events of the last 18 months within the cryptocurrency industry really have nothing to do with cryptocurrency. Unfortunately, we are repeating the same process as the traditional financial system, only using cryptocurrency as the asset. This is going to be a problem under we develop around it.
Satoshi Nakamoto had a vision of providing the world with digital currency that was tied to an electronic payment system. This would be outside TradeFi, with governments being powerless against it. It was spelled out in the Bitcoin White Paper, something that resonated with many.
Over the last 10 years, we saw massive expansion in this area. Experimentation was done, creating different consensus mechanisms. Smart contracts were added laying the foundation for decentralized finance (DeFi).
The question is, however, how much of Satoshi's vision still remains? We saw a hijacking of crypto as many of the usual players started to poke around. Ultimately, while some of the names might be different, we are left with the same financial intermediaries.
Eliminations Of Intermediaries
One of the benefits of a peer-to-peer system is the elimination of intermediaries.
At the most basic level, a blockchain allows for the transfer of value, sending of coins or tokens, without one. It also does not require a financial institution to receive or store currency.
The idea was to have all of this handled in a decentralized way. Once Satoshi figured out how to solve the double spend problem, Bitcoin eliminated the need for a centralized entity.
Yet, as we progress through 2023, we see wrecks all over the place related to "cryptocurrency". Barely a month goes by without some big name tied to crypto going down.
If we are suppose to be able to operate without intermediaries, why do we have so many?
It appear that we rejected the ideals of Satoshi. For whatever reason, mostly greed, we saw the emergence of newer participants who simply wanted to act like Wall Street. Exchanges were some of the first major entities to pop up and exert their will. People like CZ have a great deal of influence. Also, everything he is involved in is centralized.
We seem to love convenience, a feature that is serviced by these entities. Instead of taking the time to build out things in a proper manner, we rushed establish centralized actors. Most of cryptocurrency applauded FTX putting its name on the arena in Miami. Here we were celebrating another centralized entity.
Sadly, it was also a total fraud.
Decentralization and Distribution
That is not to say that centralized entities are going to be completely eliminated. They have a role to play. What we have is a massive learning towards that.
If we ranked decentralization versus centralized, we would have a 95%-5% ratio. There is very little within the industry that qualifies as centralized.
As we are learning, centralization is a point of vulnerability. FTX, Celsius, and Signature all fall into this category. Unfortunately, so do USDC, Tether, and anything Binance.
Building decentralization from the ground up takes time. It is a process that is often done on a shoestring budget. So many turn to venture capital (VC)[ funding since big money rolls in rather quickly. This is not Wall Street but simply another master resident in Silicon Valley.
One of the reasons why I so optimistic about Hive is because it has decentralization down. Due to the external attack that resulted in the fork, there is no pre-mine held in the hands of any individual. We also see now foundation or corporation behind the blockchain.
This single fact separates Hive from most of what is out there.
My view is that USDC, due to being owned by Circle, will end up being bought out by a major Wall Street bank. At some point, if stablecoins keep growing in usage, the likes of JP Morgan or Goldman Sachs will jump into the game. Unlike the smaller banks, these are flush with cash. They are known for simply buying what they want.
How would participants in cryptocurrency feel about one of the leading payment currencies being in the hands of a financial institution such as that? In reality, it matters little because Circle will end up under the banking laws anyway. Ultimately, to play, it becomes part of the established system.
Hive Backed Dollar (HBD)
Why all the focus upon the Hive Backed Dollar (HBD)?
This is one of the most important currencies. We are dealing with a stablecoin that is truly not under the control of any individual or company. It operates on a blockchain that is not run by any group. As stated above, there is no foundation behind the base layer.
The next advantage is that HBD can be generated by anyone. It only requires putting some in savings to earn interest or converting $HIVE (the 50/50 payout also can generate new coins). This means the market, aka community, is in control. We have no meetings to determine what the monetary policy will be.
Finally, HBD operates on one of the fastest networks there is. Couple this with the fact that people interact without transaction fees means that we are dealing with something truly unique.
HBD is a stablecoin that operates without any financial intermediary. In addition to conversion, people can also swap their $HIVE into HBD (or vice versa) through the Internal Exchange, a base layer DEX.
In Conclusion
For massive advancement, the industry needs a dozen Hives. The idea that we are going to transform the financial system by replicating it with financial intermediaries is pretty foolish. Playing the game with the banks on their terms is a losing proposition.
That is becoming pretty evident.
For this reason, we have to keep expanding the reach of this little gem. Layer 2 and sidechain development is crucial, as long as it is also built upon this same decentralized foundation.
The lessons of the past 18 months make this very clear.
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We saw relatively new and big businesses go under in the .com era as well. I feel like everything that is happening now is kind of similar to that. We will get past it eventually, but there will be some carnage on the way. Hive ending up to be the next big player wouldn't be a bad thing.
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From the industry perspective, you are correct. Of course, the dot com era resulted in Google, facebook, and eventually twitter; not exactly the path we want to take in my opinion.
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Right, I don't think we want anything quite as centralized as any of those.
Right, I don't think we want anything quite as centralized as any of those.
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Thank you! I have been frustrated with the portrayal of recent financial disasters by politicians and the media as being a crypto problem! The failure of centralized banks and exchanges has nothing to do with crypto - a fundamentally decentralized payments system - and everything to do with how these intermediaries are taking risks with people's money.
It is just another asset to them. That is why they treat it like every other asset.
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And the convenience is being served to us at a huge expense that deprives us of freedom with the exposure to loss of funds which occurs at a frequent rate.
We truly need a dozen Hive for people to transact without intermediaries, and for all I know there is no second Hive, it will be a step in the right direction for another one like Hive to emerge, the more the likes of Hive in a truly decentralized manner the better.
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True amazing how easily people give up their freedom.
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Man, I've had this axe to grind with the crypto community for 5 years. I entered the space first in 2017 right before the bull run to $19.7k. Removing intermediaries was the entire point of blockchain based distributed technology, and to see the greed of Wall St bleed into crypto was a disappointment, especially in the Ethereum space.
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It is an opportunity and people's love of convenience made it an acceptable path.
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I agree. Convenience is the death of self-reliance
I think it's a good thing to remove the intermediaries but I wonder if they will go away forever. From what I see, people tend to like things simple and while HBD allows for easy transfer but a lot of other options don't.
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Very interesting, thank you. I don't know much about finance, I've only read a book by Bernard Lietaer and I remember this study where he talked about complementary currencies (e.g. the wir in Switzerland) which could be factors of stability during major crises, because of their independence from the financial system in place.