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Cryptocurrency triggered a wave of innovation in the financial market. The promise of quick, secure and transparent transactions accelerated proliferation of cryptocurrencies, but they still lack mainstream adoption. Besides, cryptocurrency industry is looking for a firm grasp on its identity. The ecosystem could be compared to a chameleon, given that some of its characteristics – such as consensus mechanisms, data on chain and level of decentralization – are adaptable to an extent to enable personalized offerings for a specific purpose.
This flexibility has been favorable to the industry, and is deemed essential in various situations to acquire initial buy-in from stakeholders.
A couple of reasons why centralized approach cannot be completely eliminated from the cryptocurrency ecosystem can be well understood from the following scenarios:
Is there a need for complete decentralization?
The decentralized nature of Bitcoin led to the popularity of cryptocurrency. The network has been invulnerable to hacking since its inception a decade ago. This does not emphasize on Bitcoin being a perfect blockchain without any potholes. It has its own set of drawbacks such as scalability, limited utility and energy inefficiency. Ethereum, too, deals with similar challenges. In addition, the distributed nature of blockchain coupled with the power of miners poses challenges while upgrading the network.
Considering these scenarios, it is important to figure out whether there is a need for a completely decentralized system or if it would be ideal to complement the decentralized system with certain degree of centralization. Are people seeking a pure decentralized system or are they simply looking for a particular utility, like gaining better control over their funds and personal data or having a system that expedites cross border transactions while reducing transaction fee? Is partially-decentralized system seen as a roadmap to accomplish this goal?
It is essential to seek an answer to this question, especially when many investors and exchange operators are looking to shift to decentralized cryptocurrency exchange development ventures, for ideological reasons, despite knowing they would have to address challenges like limited trading volume, higher latency and higher transaction fees.
To get an answer to this question, it is vital to analyze the nature of decentralization, which is an operating model and an ideological state. Understanding how people perceive it is crucial to determine the favorable degree of centralization in the cryptocurrency space in the future.
This is because ideological affinity has been a bad driver of mass adoption. Let us consider Geoffrey Moore’s book ‘Crossing the Chasm’ for better insight into the same and to speculate mainstream adoption of a specific technology.
Moore explains that there is a chasm between innovators and early adopters on one side and early majority, late majority and laggards on another side. Innovators and early adopters form the initial customers of any product. They identify the potential of a given technology and overlook problems like limited performance, bugs and challenges in functionality. Talking about cryptocurrency market, innovators and early adopters are willing to accept the challenges that a purely decentralized system brings along. On the contrary, early majority, who are more concerned about quality and reliability of a product, would be less willing to overlook these drawbacks, especially if their finances suffer.
Practically, people want a system that provides them with the ability to recover their personal data in case of identity theft. Besides, they need a way to reverse a transaction that was sent mistakenly. Most importantly, they seek third party assistance when any issue arises.
To cross this chasm, the developers need to emphasize on solving real challenges for users rather than focusing on pure decentralization and or navigating the shift to decentralized cryptocurrency exchange development. If a certain degree of centralization can enhance throughput or build trusted execution environments for highly sensitive processes, it should certainly be embraced.
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