The promise of Bitcoin is great: it is the first public and globally accessible payment infrastructure. For the first time in history, every person can send value electronically without a central intermediary. For the first time, electronic financial infrastructures are inclusive and non-exclusive. How the Internet has emancipated our electronic information – everyone can become a sender and receiver – emancipates Bitcoin value infrastructures. So far, so good. But what remains of the narrative of inclusion, the wallet with an over-legal obligation to contract, in 2022 and beyond?
Banking the unbanked in practice
Especially in countries with a weak financial infrastructure, the added value of Bitcoin is obvious. In countries such as El Salvador, Venezuela or parts of Africa, there is therefore also an increased crypto establishment. However, this does not refer exclusively to Bitcoin, but generally to token infrastructures.
Thus, it is the wallet as a bank account alternative that is successfully establishing itself there and creating a new access to financial infrastructures for previously excluded people. This is often about the digital US dollar or a US dollar stablecoin, which is preferred by people over Bitcoin due to its popularity and lower volatility. Cynically, one could put it: the technology behind Bitcoin contributes to the further dollarization of some emerging and developing countries.
Tesla Securities and University Certificates as true Gamechangers
However, the promise behind blockchain technology is much more than the public institutionalization of money infrastructures. These only form the tip of the iceberg or the first point of contact. After all, a wallet is more than a bank account. It is also a securities account, a credit settlement account and a repository for NFTs or identity documents.
From a university certificate to Tesla securities: a wallet can replace all old custody infrastructures in the sense of a leap innovation and ensure greater equality of opportunity around the world. The decentralized value infrastructures, such as decentralized exchanges (DEX), are thus the most promising development program in recent years.
As an example, just think of the thousands of people in Asia who were able to earn more money with NFT games like Axie Infinity than with conventional jobs. One may bring the accusation here that it would be “only” a blockchain game. But the example shows that thanks to blockchain, people can be part of the digital cross-border working world without having to rely on intermediaries.
On the other hand, we see a crypto service sector, especially in the industrialized nations, which is increasingly functioning according to the principles of the old financial world. In a way, this is a reversal of the narrative of unconditional inclusion. Due to the regulatory system, not every person can use every service anymore. Again, it depends on where you come from.
Regulation privatizes, at least in part, a public good. Privatization, in turn, attracts with an attractive portfolio of services, such as third-party custody or the delegation of staking services. It may be assumed here that it is in the interests of the state to regain more control. For this reason, the state is likely to prefer centralized crypto services provided by intermediaries to decentralized ones.
The regulatory disadvantage of decentralization
As long as there is sufficient freedom of choice among users, this is basically no problem at all. Some opt for the regulated and centralized variant and others for the purely decentralized option. In the sense of coexistence, a very promising model. However, there is a concern that decentralized crypto applications will be increasingly disadvantaged compared to regulated ones.
Regulatory projects such as MiCA in the EU, for example, could make it easier for a centrally managed stablecoin to get an exchange listing than a decentralized stablecoin, such as Maker’s Dai. This creates the danger that we will experience two crypto worlds that are less and less in exchange with each other. The user is thus increasingly forced to decide on which side he is supposedly on.
Prefer self-custody (non-custodial wallet) or prefer third-party custodians? The bridges could be torn down more and more in the coming months. The narrative of inclusion or banking the unbanked can then only be applied to the crypto sector with restrictions.
This makes it all the more important to further optimize the user-friendliness of DeFi applications so that a two-class society does not arise.
The price of privatization
A side effect of crypto privatization is the emergence of new single-point-of-failure. However, the blockchain economy should overcome this. The emergence of ever more powerful crypto companies in turn increases the risk that single-point-of-failure can shake the entire sector. Be it the collapse of the lending market, see Celsius, or the hack of over 8,000 Solana Hot wallets. Whether it was self-inflicted or simply fell victim to a cyber attack, the vulnerability of centralized infrastructures is becoming more apparent these days than ever.
Decentralization is not always the perfect alternative and also has its disadvantages. Used sensibly, however, it can very well contribute to the reduction of default risks. This applies not only to financial and administrative matters, but also, for example, to infrastructures based on the Internet of Things (IoT). If more and more transactions are processed by more and more end devices, for example drones or autonomous driving, there are also ever greater risks if individual interfaces or processing points fail.
Based on the politically proclaimed technological neutrality, it would therefore be desirable to define a new neutrality towards organizational forms. This means that decentralized projects should not be disadvantaged de jure compared to central projects.