The sphere of cryptocurrencies is a good illustration of the dynamic equilibrium between centralization and decentralization mentioned in the previous note.
Bitcoin, the first of the cryptocurrencies, was created as maximally decentralized money and is intended to serve as digital cash. But Bitcoin is not just a coin, but a coin with a built-in payment system. For ordinary users to be able to transfer bitcoins to each other, there are needed at least 1) network nodes that follow compatible transaction verification rules, 2) miners adding transaction blocks to the blockchain, and 3) wallets that allow signing transactions. Generally speaking, these functions can be combined: every node can mine, and every user can use a full node application with mining functionality as a wallet. Monero works on this principle and generally manages, providing a very high level of decentralization; however, Bitcoin is intended to become global money in the future, meaning it needs a very high network effect, and therefore an extremely low barrier to entry so that literally anyone can use it, both in terms of the required level of technical knowledge and in terms of the cost and compactness of the necessary equipment.
To this end, an entire ecosystem of entities has grown around Bitcoin to increase its ease of use: exchanges, exchangers, bank cards denominated in bitcoin, overlays for programming smart contracts, stablecoin lending services secured by bitcoin, tokenized bitcoins on other blockchains, transaction anonymization protocols, micropayment protocols, and much more. Most of these entities already require a trusted intermediary, meaning they are more centralized than pure Bitcoin. However, all this colorful complexity provides a rich selection of options for using bitcoin for various needs. Many of these services will prove unnecessary, and their developers will close their projects. Many will scam, and their developers will disappear with users’ money more or less with impunity. Many will be hacked, and hackers will walk away with users’ money (while developers will be suspected of affiliation with the hackers). But this is a normal process of competition, which ensures progress in the level of Bitcoin adoption by the masses of users. As long as the base protocol holds. And it seems to be holding, and with each year, Bitcoin’s Lindy effect grows stronger.
Again, when claims are made that Bitcoin is inconvenient for a certain task, it immediately turns out that there is a whole bouquet of other cryptocurrencies tailored specifically for that task. Here is crypto for smart contracts, here is crypto for tokenomics, here is one with fast transactions, one with cheap ones, one with anonymous ones, one for storing data in the blockchain, one with reversible operations and the ability to freeze accounts—and so on. Of course, each such cryptocurrency is a compromise. Many are not decentralized enough, many are not secure enough, some have insanely huge blockchains, some have insanely expensive transactions—but no one seems to hope anymore that something universal, surpassing competitors in all conceivable parameters, is even possible. This is the market, and the way it solves problems often baffles proponents of careful planning and managed development.
Just as the idea that content could be created not by site creators but by their users gave birth to Web2, the idea that not only content but also values could be transferred decentrally on the internet gave birth to Web3. However, there is an alternative vision of what exactly Web3 should become, and I hope to dedicate the next note to this.
