Bitcoin: A Decentralized Digital Currency Relying on Centralized Services And Platforms

Bitcoin is, at its core, based on a handful of simple ideas and ideologies. First and foremost, Bitcoin is all about decentralization, which means that everyone who is a part of the Bitcoin network has an equally important role. Additionally, Bitcoin is peer-to-peer, which means transactions should take place between two parties directly, without middlemen. Yet for some reason, most of the Bitcoin services offer a middleman service.
Decentralizing Authority, Finances, And More

Whenever a presentation on Bitcoin takes place, one of the very few words you will hear every time is “decentralization”. While that word may be scary to most people out there, it is actually an easy term to comprehend. Decentralization in a practical form means distributing functions, powers, things or even people away from one central location or one central authority.

To put decentralization into everyday terms: a government is a central authority. There are a handful of people, who convene in one – central – location and determine the fate of an entire country or nation. Very few people hold the power to decide over the lives of millions, and such a balance of power is not fair.
Granted, not every individual on this planet is fit to make decisions affecting an entire nation or country, nor should they be. This is exactly what decentralization is all about, as the goal is to let people make their own decisions that will affect them personally. And if those people decide to spread the word about what they are doing to others, networking in its truest form is achieved.

In the world of Bitcoin, centralization often refers to financial institutions, such as banks. A bank is a central authority in the financial world, and a bank’s decisions can – and will – affect the financial status of every single customer they have. If a bank goes out of business, the customer has very little chance of recovering their funds. Such a balance of power is unjust and needs to be corrected.

Bitcoin has the potential to correct any imbalance in the world, whether it is power, control, financial future or anything else. The underlying blockchain technology allows us to achieve many great goals and leaves a lot of room for unexplored potential. More and more developers are showing an interest in blockchain technology and creating additional use cases, which is another form of decentralization.

So then the question becomes: why do we keep using centralized services in an ecosystem that allows us to decentralize everything we want? A very good question indeed, and one that is not easy to answer. However, part of the reasons can be attributed to human nature, as humans do not embrace change naturally. The average human prefers to stick what they know, even though what they know is the source of the problem.

Sticking To Centralized Systems In The Bitcoin World

With Bitcoin’s primary focus being on decentralization, there should be no need for centralized
services at all. Granted, during Bitcoin’s early stages, the average exchange platform had to be centralized in order to accept deposits and process withdrawals. Yet in doing so, Bitcoiners did not take back control of their future, they decided to give it to a different breed of central authority.

At its core, a Bitcoin exchange that does not enable direct peer-to-peer transfers is a centralized authority. Not only do these exchanges force customers to comply with regulation – AML and KYC – but they also impose limits as to how much funds can be deposited, withdrawn and traded on a daily basis.Additionally, traditional Bitcoin exchanges hold user funds in their own Bitcoin wallets or bank accounts, without giving the end user access to their funds as long as it remains within the exchange’s own ecosystem. Granted, withdrawing funds in Bitcoin or fiat currency is enabled by default. Yet it can take up to a few days before a fiat currency withdrawal has been executed, as users rely on the “goodwill” of these exchanges to carry out transactions swiftly.

Luckily for digital currency enthusiasts, Bitcoin deposits and withdrawals do not require any form of approval or a third party in order to be executed. However, exchange users are still sending a decentralized currency – Bitcoin – to a centralized third party. This is now the vision Satoshi Nakamoto had when Bitcoin was created and introduced to the world.

When the Mt. Gox exchange platform collapsed, a lot of users were affected and lost funds. Those funds were lost either in Bitcoin or tied up in one of Mt. Gox’s bank accounts. In both cases, the end user had no direct control of their funds and was not able to rectify the situation for themselves without outside help.

And within lies the problem with centralized services, even if they are handling Bitcoin transactions. The individual user has no direct control over what is happening to their digital assets once it has been transferred to a third party platform. This is not a problem as long as everything is alright, but in the case of a hack, breach or other malicious activity, there is nothing that can be done.
Peer-to-peer Alternatives Are Hard to Find

Despite Bitcoin being all about decentralization and peer-to-peer interaction, there are very little
services or platforms offering that kind of functionality. In terms of exchange platforms that do not act as a middleman, the most obvious choice is LocalBitcoins. By using this platform, buyers and sellers of Bitcoin can link up with one another, without relying on order books or buy/sell orders to be matched by a trading engine.

Coinffeine is another exchange platform to embrace decentralized peer-to-peer trading, although their service is currently still in beta. Additionally, they have integrated OKPay into their platform, which acts as the sole payment processor for both Bitcoin and fiat currency. In a way, this is centralizing a decentralized aspect once again, so this solution still needs a bit of work.

Buying goods and services in a decentralized and peer-to-peer fashion will take place through projects such as OpenBazaar. With OpenBazaar, anyone can create their own marketplace, without there being one central point of failure or server to attack. Adoption of this type of service is still in its early stages though, so don’t expect a revolution to take place overnight.

Other than that, there is still a lot of room for competitors who want to embrace peer-to-peer contact through Bitcoin. Decentralization starts from within, and we can only hope to see Bitcoin evolve into a proper decentralized ecosystem sooner or later, rather than relying on centralized services.


What are your thoughts on using centralized services with Bitcoin? Let us know in the comments below!Images courtesy of Shutterstock