Decentralization isn’t the most important reason to switch away from National Fiat

I’ve been noticing some confusion from several people about what it is that cryptocurrencies accomplish and why and everyone seems to be citing decentralization as the main reason that helps the average person. While it’s certainly important, it’s not really the most important reason. The single most important reason to switch away from national fiat is to stop the greatest bank heist that has been perpetrated in all of human history. Let me explain…

There has been ongoing in virtually all national fiat a stealth tax that is nearly impossible to track and it is known by the name of “inflation”. We’ve gotten used to this over time in much the same way that a frog sits boiling in water. We are partially compensated with pay increases, but this only makes back a small amount of the purchasing power that’s lost. The founders of government recognized the opportunity that the industrial revolution provided to scrape excess profit off the top of production so that you never see that it existed in the first place. That scheme was to give government and central banks the ability to counterfeit, which gets passed along as cost to everyone else.

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As an example, my father, who’s had a bank account since 1950’s has had a savings account for over 60 years. It hasn’t appreciated all that much over time. My own crypto earnings have far exceeded the returns that he’s had in that same amount of time and I’ve only been in this space since Feb 2017. My dad’s one dollar bill in the bank in 1960 is now only worth $0.04 cents in today’s dollars. The bank would have to offer at least a 2% annual interest increase to just keep pace with inflation. The reality is that he’s lost purchasing power by holding his money in this way.

The Most Important Property of Bitcoin is SOV

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SOV stands for “Store of Value”. The most important property of bitcoin isn’t decentralization; it’s that fixed upper limit of 21 million coins hard coded into the protocol. This ensures that no politician can “print” bitcoin as a means of stealing depleting the overall store of value property of bitcoin. This is the main reason why governments hate bitcoin. They don’t want to operate under the principle of limited money.

This is also the reason why many governments went off the gold standard in the last century, because they spent so much that they had to renege on the silver certificate. We therefore have a “Federal Reserve Note” which is not based upon any hard promise of value. It can mean whatever the Keynesian economists want it to mean to suit their political whims. To put your money into bitcoin is to say “I’m not funding your BS, go find some other suckers to steal from”.

Decentralization isn’t “All or Nothing”

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Some people mistakenly think that if some currency gets too centralized that a transaction can be faked or your bitcoins stolen, etc. This would be extremely hard to do and would likely cost the attacker much more than they would gain from the theft. About the only entity who might attempt something like a 51% attack is a state actor with gigantic hash power. But the fact of the matter is that a transaction before it can be submitted to the blockchain has to go through a long list of validity checks such as whether you signed your private key to the public key and that the hashes match, etc. Any transaction that doesn’t fit a list of nearly 50 security checks will not even make it into the mempool in the first place.

Such an attack would likely bring down the entire network. Once a realized double spend is acknowledged by the network, the value of the currency would crash because it would no longer be a secure SOV. This is why a state actor might want to conduct such an attack and why anyone looking for selfish gain would likely understand that it wouldn’t be worth it.

Not all Crypto is the Same

Most of what I said above applies to bitcoin specifically. It’s important to realize that many coins don’t follow the same rules. Some like Steem have built in inflation (a small amount compared to government fiat) so that users aren’t burdened with transaction fees for upvoting.

The same is the case with EOS soon to be released. Some coins are more centralized than other coins and some such as Ripple even offer KYC and reversible transactions. If you plan on using a coin, it’s important that you read the white paper first.

The Scalability Trilemma (modeled after CAP or Brewer’s Theorem)

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Vitalik Buterein has said that there’s a trade off that must be made between decentralization, security and scalability. It’s possible to solve a distributed network for any two of these properties but one must be sacrificed given the current level of technology. For instance, bitcoin solves for decentralization and security, but had to sacrifice scalability. EOS on the other hand is taking the approach of solving for scalability but to a lesser extent sacrifices somewhat equally between security and decentralization.

This theorem is a major motivating factor for the differences between various cryptocurrencies. If you want something to operate as a superior SOV, then bitcoin solves for security and decentralization. Smart contracts however need scale which means that either security or decentralization need some level of sacrifice. In the future, this trilemma will not be as acute, but for this to be the case, networks will have to be able to handle GB+ level blocks per second. Right now, that would heavily centralize the system. Once smart phones can do this level of computation using satellites, that scaling limitation will be gone.

One might be able to estimate when the cryptocurrency trilemma will be a thing of the past based upon the rate of network scaling. In 1995 my internet connection was processing 14.4k. Now it’s theoretically up to 25 Mbps. At this rate, 1 GB / sec isn't likely to happen before 2030. For this reason, some sort of sacrifice will likely be needed in between for smart contracts to work. The result is that we might have to face the danger of a digital panopticon, probably for at least a generation.

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