In a new 79 page CryptoCompare report, the cryptocurrency information website attempts to taxonomize current cryptoassets and finds that cryptocurrencies focused on decentralization and payments have lost market share to more centralized coins.
In the extensive report, they started off by detailing their overall CryptoCompare Archetype to illustrate the overall cryptocurrency environment.
One of the first major findings of the report is that of all cryptoassets, 55% are centralized, 30% are semi-decentralized, and only 16% are decentralized. CryptoCompare drew on Peter Valkenberg’s, Director of Research at Coin Center, distinction between centralization and decentralization as “the reliance of the many, not the few” to influence how they classified the different coins. Then of payment tokens, 41% are centralized, 22% are semi-decentralized, and 37% are decentralized. These numbers decreased when evaluated by marketcap, but still exhibited fairly similar growth trends.
Overall, it illustrates how the cryptocurrency market is changing to incorporate more centralized and permissioned networks.
What are the defining characteristics of these differences?
Cryptocurrency was original created to be a decentralized, permissionless, peer-to-peer digital currency so individuals could cheaply and quickly send/receive money without having to go through centralized banks and governments. This was advantageous since centralized organizations were not always aligned with the interests of consumers. Examples include banks/governments collecting a lot of personal information to only then have that information hacked and stolen, banks getting bailed out by governments and pushing costs onto consumers, providing sub-par services, and shutting down the accounts of dissidents. Decentralized and permissionless cryptocurrency would provide solutions since the network is maintained by thousands of miners acting individually so no one party had full control and individuals also had the power to fork away from the main chain if they did not like what another group of miners were doing to the network. This ensured that no single person or centralized group would be in-charge nor have the power to make decisions against any other group of individuals.
However, the emergence of centralized coins and permissioned networks adds the old system structures to the digital world. A centralized cryptocurrency can either have a huge concentration of mining power within one party or just pre-mine all coins and have the majority held by the creators. This enables a few individuals to make governance decision for the whole network, centralization, and also allows those few individuals to be gatekeepers to not allow someone on the network, permissioned. A good example is Ripple’s main development group, Ripple Labs, being responsible for network changes, while users do not have the power to overrule them. Ripple also has the ability to freeze the account of any user at any time. This is the exact opposite of Dash, Bitcoin, Bitcoin Cash or other decentralized and permissionless networks.
Dash provides efficient decentralized and permissionless payment service
Dash has long been focused on being an everyday payments cryptocurrency, as it is categorized in the report, while also remaining a decentralized and permissionless network. Dash is currently used by over 3,600 merchants around the world and features some of the lowest transnational costs around. However, Dash further improves upon other cryptocurrencies in its category by integrating its unique governance system. The Dash Decentralized Autonomous Network (DAO) splits the mining rewards between miners (45%), Masternodes (45%), and the treasury (10%). The split between miners and Masternodes not only enables more decentralization of power, but also allows the network to offer features such as InstantSend and PrivateSend. Then the treasury allows the Dash network to have its own source of funds, of which the Masternodes vote to decide how to allocate, which mitigates the risk of Dash being influenced by outside parties that may not have the network’s best interests in mind.
Dash’s DAO allows the network to remain decentralized and permissionless, but still have a governance and organization method that enables the network to fund more productive development and adoption strategies. The DAO Treasury also funds the Dash Core Group to be the main group of code and business developers for the network, but this privilege can be revoked by the network by simply not continuing to fund them in their next funding cycle. The network can also overrule individual decisions, as was seen by the new Dash rebranding where the final rebranding strategy was one submitted by the Dash community through the DAO treasury, rather than the one picked by Dash Core Group. Thus, Dash can function as a business and have the benefits of large and rapid growth without the centralization and permission risks of a business.