Bitcoin: the Deep Problem of Power Centralization
The most well-known cryptocurrency in the world, Bitcoin, was designed to function as a decentralized digital currency with no need for a single governing body. But as the currency has gained acceptance, questions about the network’s actual degree of decentralization have surfaced. Bitcoin is much more centralized than it might seem in reality.
The concentration of hash rate and wallet ownership emphasizes how centralized the Bitcoin network is. Just 2% of Bitcoin wallets hold 71% of the total supply of Bitcoin, and the top five mining pools control more than 50% of the hash rate. The genuine decentralization of Bitcoin may be threatened by this power monopoly in the market and network for Bitcoin.
Additionally, concerns about the integrity of the Bitcoin market are raised by the prevalence of bot trading, wash trading, and market concentration. More than 95% of all Bitcoin trading volume is produced by bots, and only a few major exchanges control most of the market’s Bitcoin trading volume. This further undercuts the ecosystem’s purported decentralization.
The centralization of Bitcoin, however, goes beyond these aspects. The cryptocurrency is actually governed by a small number of people and businesses who work together to raise the price of Bitcoin and profit financially. These entities, also referred to as the “hidden owners” of Bitcoin, use their sizeable holdings of the digital currency to influence the market.
A system that benefits a small number of people at the expense of the majority was created when the Bitcoin’s hidden owners worked together to manipulate the market and raise the price of the currency. To do this, they employ a variety of strategies, including coordinated buying and selling, spreading favorable information and rumors about Bitcoin, and generating buzz about the currency to increase demand.
The infamous “pump and dump” scheme, in which a group of investors buy a lot of Bitcoin to raise the price and then sell their holdings to make a profit while leaving other investors with significant losses, is one example of how the Bitcoin market is manipulated.
The concept of decentralization is itself undermined by Bitcoin’s true nature as a centralized currency, which also casts doubt on the cryptocurrency’s reliability and long-term viability. Recognizing and addressing the centralized nature of Bitcoin is crucial in order to build a more open, decentralized, and just cryptocurrency ecosystem as the currency continues to grow in acceptance and draw more investors.
Supporting the adoption of alternative cryptocurrencies that are intended to be more decentralized and immune to market manipulation is one possible solution. Additionally, encouraging the use of decentralized exchanges as well as greater transparency regarding Bitcoin ownership and trading activity can help to lessen the concentration of power in the hands of a select few.
The prevalence of market manipulation, the concentration of power, and the lack of transparency in the Bitcoin market are grave issues that cannot be disregarded. To build a more decentralized and just cryptocurrency ecosystem, it is crucial for regulators, developers, and investors to collaborate.
In conclusion, there is ongoing discussion about whether the Bitcoin market and network are truly decentralized. The network is largely under the control of a small number of entities, despite the fact that Bitcoin was intended to be a decentralized currency. By manipulating the market to increase the value of Bitcoin and make enormous profits for themselves, Bitcoin’s anonymous owners behave like a massive casino system. The very concept of decentralization is undermined by the concentration of power in the hands of a small number of people and institutions, which also casts doubt on the legitimacy and long-term viability of the cryptocurrency.
Author: Pooyan Ghamari, Economist and Blockchain Specialist
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