It's especially troubling how centralized the minting and mining has become. And it's easy to forget there's the problem with energy consumption related to the PoW algorithm eating almost 1% of the entire world's energy simply for an accounting database.
The major reason you don't see payment processors dealing with cryptocurrencies is because the major usecase for most cryptocurrencies like Bitcoin, Monereo, and Ethereum is money laundering.
One important point: if we actually include all 7 billion
people on the earth, most of whom have zero BTC or
Ethereum, the Gini coefficient is essentially 0.99+. And
if we just include all balances, we include many dust
balances which would again put the Gini coefficient at
0.99+. Thus, we need some kind of threshold here. The
imperfect threshold we picked was the Gini coefficient
among accounts with ≥185 BTC per address, and ≥2477 ETH
per address. So this is the distribution of ownership
among the Bitcoin and Ethereum rich with $500k as of July
2017.
In what kind of situation would a thresholded metric like
this be interesting? Perhaps in a scenario similar to the
ongoing IRS Coinbase issue, where the IRS is seeking
information on all holders with balances >$20,000.
Conceptualized in terms of an attack, a high Gini
coefficient would mean that a government would only need
to round up a few large holders in order to acquire a
large percentage of outstanding cryptocurrency — and with
it the ability to tank the price.
With that said, two points. First, while one would not
want a Gini coefficient of exactly 1.0 for BTC or ETH (as
then only one person would have all of the digital
currency, and no one would have an incentive to help boost
the network), in practice it appears that a very high
level of wealth centralization is still compatible with
the operation of a decentralized protocol. Second, as we
show below, we think the Nakamoto coefficient is a better
metric than the Gini coefficient for measuring holder
concentration in particular as it obviates the issue of
arbitrarily choosing a threshold.
...However, the maximum Gini coefficient has one obvious
issue: while a high value tracks with our intuitive notion
of a “more centralized” system, the fact that each Gini
coefficient is restricted to a 0–1 scale means that it
does not directly measure the number of individuals or
entities required to compromise a system.
Specifically, for a given blockchain suppose you have a
subsystem of exchanges with 1000 actors with a Gini
coefficient of 0.8, and another subsystem of 10 miners
with a Gini coefficient of 0.7. It may turn out that
compromising only 3 miners rather than 57 exchanges may be
sufficient to compromise this system, which would mean the
maximum Gini coefficient would have pointed to exchanges
rather than miners as the decentralization bottleneck.
Conversely, if one considers “number of distinct countries
with substantial mining capacity” an essential subsystem,
then the minimum Nakamoto coefficient for Bitcoin would
again be 1, as the compromise of China (in the sense of a
Chinese government crackdown on mining) would result in
>51% of mining being compromised.
- Balaji S. Srinivasan (the CTO of Coinbase)
https://news.earn.com/quantifying-decentralization-e39db233c...
I don't agree that the energy consumption is a real concern because we don't have a comparison here for what other currencies cost. The cost seems like it should be fairly efficient because there are competing uses for energy.
I'm not sure exactly what the quoted text is trying to say or how it is relevant. I guess towards the notion of "decentralization"? What I would say here is that the reality is that we don't know the gini coefficient of a single thing in the universe except goods that are extraordinarily scarce (like "Mona Lisa paintings"). The estimates for these things for real-world currencies are laughably bad; they are based on self-reported statistics and upsampling, and they rarely reflect the actual scarce good -- effectively M0 of a single currency, which is a number we don't even have for Bitcoin because exchanges represent aggregated possession rather than actual ownership. So my point here is that yes, maybe that Gini coefficient looks bad, but it's the first time that we've even had a moderately realistic look at what a Gini coefficient looks like. Maybe they all look like this -- maybe gold is .99+, maybe Dollars are .99+, maybe Euros are .99+, maybe cigarettes in prison are .99+? Nakomoto coefficient is even more immeasurable for anything but cryptocurrencies, and also disregards aggregated records of deposits.
What is “the most successful cryptocurrency”? I don’t know, but I would vote for one of those that set out as a development platform, and have successfully ignited a huge amount of experimentation on novel financial and organizational instruments (although their value may be unfounded).
Yes, most other cryptocurrencies provide the same thing. But Bitcoin provided it first.
[0] https://brd.com/
"Whole point" is speaking for a whole lot of people who may not share your views. Certainly circumventing banks was an important founding concept, but circumventing _central_ banks is arguably much closer to the goal.
There's no reason why credit cards shouldn't exist denominated in Bitcoin -- they provide easy access for consumers to obtain unsecured credit. There's no reason why banks (even fractional reserve banks) shouldn't have accounts denominated in Bitcoin -- they provide an easy path for consumers to issue credit.
Opinions may vary on this, but if Bitcoin (or another decentralized cryptocurrency) succeeds the way that people want, I don't see any way to _stop_ these things from happening. People are willing to pay interest on loans; other people want to earn low-risk interest on capital.
The thing that will change is that hopefully without central banks consumers will have to realize that depositing money in banks is not risk-free. And hopefully society will learn this as well and we'll move out of the cronyism/free-money regime that we've been stuck in for the last hundred years or so.