🎭 Decentralization Theater β€” Issue No. 46

πŸ“°News

This week, Binance launched the mainnet of its own blockchain-- Binance Chain. As you probably know, Binance is one of the largest and most successful centralized exchanges in the crypto world. While they'd previously launched their own token on Ethereum, that token will now be migrated to the newly launched chain, which also supports issuing other assets on top of it. The company also promises to deploy a decentralized exchange (DEX) on the new chain in the coming weeks. Link.

At first glance, all of this sounds pretty good. A centralized exchange is willingly ceding power to a decentralized network and promising to migrate much of its exchange volume there. What could be wrong with that? A look below the surface, though, reveals a much murkier picture. For one, there are precious few details about the actual nature of this so-called blockchain. While it supposedly uses the Tendermint consensus algorithm, which is also used by some Proof-of-Stake networks like Cosmos, Binance Chain has only eleven validators, all of which were hand picked by Binance. What's more, it's not even clear if the validators have to stake any funds to produce blocks, or if they're simply operated or paid by Binance to do so. According to the documentation Binance themselves published, the best way to interact with the chain is through a centralized API they provide. Most egregiously, though, the source code for the nodes which underpin the network hasn't even been published. Instead, pre-compiled binaries for the software have been dumped on GitHub with minimal documentation. Link.

Despite all this, Binance's ambitions for their new network seem large. The Block is reporting they're actively trying to woo projects to migrate from other networks, possibly by threatening token based projects with delisting from their exchange if they don't. One project, a blockchain based social network called Mithril, has already announced their intention to move from Ethereum to Binance Chain. Link.

If you're a regular reader of this newsletter, you hopefully know that I keep an open mind about projects exploring the tradeoff space in the crypto world. I have opinions about what I think is likely to succeed, but I also acknowledge that no one knows the right recipe yet. The blockchain space is still too new and the world is simply too chaotic to predict the future. So while some projects seem massively flawed to me, I'm hesitant to outright dismiss most good faith efforts to experiment.

Sometimes, though, it's necessary to call a spade a spade. Binance Chain is not a decentralized blockchain, and I think its creators know that. Regardless, they're engaged in a massive marketing effort to push it as such, and to lure projects off of credible platforms. The motive for this seems simple: enriching the owners of Binance by pumping the value of their own token and capturing as much of the energy and enthusiasm around cryptonetworks as possible. Let me be frank: if you care about the movement toward a more decentralized world, you should avoid Binance Chaince and any project that leverages it.

That begs the question, though, why should one care about decentralization in the first place? What does decentralization even mean, and what makes it important? This is something I've thought a lot about, and here's the best articulation of the answer I've formulated to date: decentralization is about the diffusion of power. History has shown us again and again that when too much power is concentrated in too few hands, bad things happen. This has taken many forms over the ages, such as empires, totalitarian regimes, monopolistic corporations, and modern day digital aggregators, among others. In every case -- be it via corruption, malice, or plain old incompetence -- concentration of power has led to strife and suffering.

The promise of decentralized crytponetworks is their ability to enable broad human collaboration, at a global scale, without the need for powerful centralized entities to coordinate that activity. That vision is exciting, but not guaranteed. We have to work for it. Projects like Binance Chain or Facebook Coin don't get us closer to that vision. At best they distract from it; at worst they try to co-opt it for selfish monetary gain. We should not abide such efforts.

πŸ“ŠStatistics

$9.8 Million. The value of assets locked as liquidity in the Uniswap decentralized exchange. Uniswap was initially developed by one developer as a side project. It has quickly grown to one of the most popular ways to buy and sell tokens on Ethereum. The smart contract based protocol doesn't use a traditional order book, instead relying on liquidity reserves provided by users. Link.