Creator of Dogecoin: institutionalization is not consistent with the original idea of cryptocurrency

Creator of Dogecoin: institutionalization is not consistent with the original idea of cryptocurrency12.11.2018


Creator of Dogecoin: institutionalization is not consistent with the original idea of cryptocurrency

Many early cryptocurrency followers criticize Wall Street’s entry into a new financial ecosystem, explaining this negative attitude by creating centralization. This time, the creator of Dogecoin Jackson Palmer expressed his opinion on the entry of cryptocurrencies to the institutional market in his article “The paradox of the institutionalization of cryptocurrencies”, published by the Diar portal.

Palmer criticized the direction chosen by the industry, as well as events that are perceived by the cryptocurrency community as a driver for the growth of the entire market, including the launch of the Bakkt custodial trading structure and the Bitcoin ETF approval. He also draws the attention of readers to the fact that many traders place high expectations on the decisions of regulators, while forgetting about the very idea of ​​cryptocurrencies.

“The cryptocurrency community is thrilled that new financially regulated products will be launched soon, waiting for large amounts to be injected, but it is important to think about how new tools fit the original idea of ​​cryptocurrencies”, he writes.

Palmer argues that cryptocurrencies are based on three components: the lack of censorship, the ability to carry out transactions without trusting another person, and the ability of the user to get a transaction history at any time. According to him, it is these principles that characterize decentralization, which does not need approval by the authorities or other centralized bodies.

“Insensitivity to censorship implies that the user should not rely on any centralized structure. If any part of the nodes disappears from Bitcoin, the others will continue to ensure the normal functioning of the network. However, if Coinbase.com is captured or disabled, users who use this service to access Bitcoin will lose it”, Palmer writes.

He also draws attention to the fact that a centralized structure may limit the powers of clients due to their personal biases. Users, using institutional custodial services like Bakkt, Fidelity and Coinbase, use the services of an intermediary who owns clients' private keys and, accordingly, their funds.

“When an investor buys Bitcoin through an ETF, he only owns coins on paper, while the provider can change the numbers in his central database. Simply put, without owning private keys, you do not own a cryptocurrency”, the author reports.

This, in turn, creates a problem that contradicts the third principle of cryptocurrency. Since, due to centralization, users are not able to check the transaction log, any financial institutions that are used as intermediaries can only support partial security of assets.

Palmer drew attention to the fact that users should pay more attention to technologies that reduce the involvement of financial institutions in the cryptocurrency world, for example, Lightning Network and Plasma. This is necessary to maintain the original principles of decentralization, which is the basis of cryptocurrency.

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