Close to 14 years after its inception, bitcoin remains the only decentralized payment system according to Neil Jacobs, an influential Bitcoin advocate, educator, and content creator.
Writing on Bitcoin Magazine, Jacobs argues that bitcoin purposefully sticks to an inefficient decentralized system which ensures it remains the only true system for transacting online without the need for a third centralized party. While decentralization is routinely associated with the crypto ecosystem, the word is more often used as a buzzword.
According to Jacobs, you only need to look at Ethereum to understand how decentralization is lacking in the ecosystem.
Ethereum, which transitioned to a Proof of Stake (PoS) system in September 2022 is dominated by 4 entities that control the private keys to the majority of staked Ethereum:
- Coinbase
- Lido
- Kraken
- Binance
Moreover, Jacobs argues that Ethereum’s future supply is unknown because decisions on its issuance schedule are very centralized. He even highlights the control that the Ethereum Foundation applies on the network:
Ethereum Foundation insiders repeatedly delayed its promised difficulty bomb without a community vote, which altered ETH’s supply issuance. They silently activated dozens of hard forks without community notice that passed unilaterally within hours.
On the other hand, the Bitcoin system, which continues to run an intensive Proof of Work (PoW) system, has over 14,000 fully validating, archival node operators which find a low barrier to entry on the network. As Jacobs says, it is very cheap to operate a full node, and operators can join daily.
Jacobs, who has more than 40,000 followers on Twitter points out that Bitcoin has always prioritized a low-cost node operation, enabling the largest and most distributed network of people to reach consensus without the need for a third party.
“Fully validating, archival nodes ensure that no one double-spends bitcoin and that its 21 million supply cap persists. Full nodes allow anyone to send and receive bitcoin without trusting any central party.”
Jacob’s point is not to say that centralization is bad, but he notes that it provides a lot of advantages and benefits to blockchains:
- Speed
- Storage capacity
- Responsiveness
- Minimize bureaucracy
- Fix bugs quickly
- Reduce fees
- Improver user interfaces
- Respond to business opportunities
These are some of the qualities that the bitcoin network may be forfeiting by sticking to its current consensus system. However, blockchains that add centralization forfeit scarcity which is the quality that makes bitcoin an asset that people put their wealth into, currently the 14th most valuable asset in the world.
“Decentralization is the only thing that provides Bitcoin with credible scarcity. All other coins are controlled by an oligopoly or small group of insiders. They can make — and change — the rules,” Johns says.
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