Before one is to get involved in Bitcoin, it is imperative to understand what makes Bitcoin unique. Bitcoin is a decentralized peer-to-peer currency that does not rely on a central government, central company, central bank, and doesn’t have a central point of failure. Bitcoin is also a trustless system where individuals involved in the ecosystem take their own precautions to protect their bitcoin without placing trust in a centralized entity to do so. Along those lines, Bitcoin, in its purest form, does not look like the traditional payment structures that are used most today.
So, why do I bring up these traits of what makes Bitcoin unique? Unfortunately, as with most innovative and unique systems, humans tend to want to make these structures look like something they are familiar with but at the same time end up detract from the great potential of the structure. We need to be vigilant against the threat of centralization to Bitcoin. Common excuses are making Bitcoin look more like the current system to spark mass adoption, or making it more “common sense”, but that doesn’t work in the end.
What prompted me to state this? Recently, I read a news report on a new development in the Bitcoin space that certainly would generate excitement but also generated concern on my end. Why is it that we would like to make Bitcoin look like something we are used to? In the process of doing so, it is easy to get muddled up with banks, credit card companies, high transaction feels and most dangerously, centralized structures. Not good in my book, and I believe many who truly believe in the revolution sparked by Bitcoin to decentralize all things would feel the same.
So, what is the big deal about Bitcoin related companies that are more centralized in nature? Unfortunately, no company is perfect and all companies can fail. Some certainly do and specifically some exchanges and companies in the Bitcoin space have failed to meet the needs of consumers. What is a common trait in some of the most recent Bitcoin related business flops: centralization and too much consumer trust in a company. Owners of Mt.Gox committed some grave errors, coupled by the fact that there were some single points of failure within Mt. Gox’s structure. Additionally, some lost entire Bitcoin savings accounts in Mt.Gox as they had not learned or neglected to implement more secure storage of coins off of an exchange. Gox serves as a wake-up call to Bitcoin users to not only diversify where Bitcoins are held and stored but additionally to not place much trust in a centralized exchange where very few are keepers of the keys. Its imperative that we recognize that Mt.Gox is NOT Bitcoin and Mt.Gox was not too big to fail. What if Mt.Gox was more transparent and decentralized? What if the majority of individuals who left all coins in Gox actually diversified and decentralized coins to different wallets instead of trusting in one exchange? These are questions we need to consider when moving forward following the closure of Mt.Gox.
Why now would it be beneficial to place trust in a Bitcoin company holding all consumer coins in one place (single point of failure)? In the end, the community has the ability to decide on which businesses to support, but one should be mindful of the true unique nature of Bitcoin before supporting a centralized structure that simply might taint Bitcoin. My question for you, which exchanges are you using? What type of wallets do you have? If a particular exchange or brokerage is closed down right now, would you lose all of your coins? Are you diversifying and decentralizing your financial portfolio? Why trust in one centralized structure when Bitcoin enables us to make choices to guard ourselves against a single point of failure?
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