Ethereum [ETH] Co-Founder’s perspective: Decentralization vs centralization

The market exchanges are an integral part of any economy, be it the fiat market or the cryptocurrency market. Centralized exchanges do play a key role in making currencies accessible but they defeat some of the basic functionalities of cryptocurrency like trustless transactions and privacy.

Vitalik Buterin, Co-Founder of Ethereum, at the TechCrunch event, emphasized on ”how hard it is to live in a world where everything is centralized or decentralized”. He mentioned:

“I definitely hope centralized exchanges go burn in hell as much as possible.”

According to Buterin, centralized exchanges subsist because they serve as a tie between the fiat world and the cryptocurrencies. Buterin said:

 “And the fiat world only has centralized gateways,”

Centralized exchanges have four core attributes:

  1. Capital deposits
  2. Order broadcast
  3. Order matching and
  4. Token exchange

These attributes are similar to that of traditional [fiat] exchanges. As for digital asset exchanges, Buterin states that it is still in its early days, but there is a noticeable advantage from a user’s point of view.

For example, one doesn’t need to sign up or login but can directly send money to a wallet and define an output address. This way, exchanges only act as input/output outlets, transferring tokens from one address to another in two distinct currencies.

Vitalik also added that Ethereum Foundation tries hard to be a decentralized organization but ‘user authentication’ is one of the major roadblocks to achieve the same. In a centralized exchange, user authentication is also centralized as there is only one place where it can be performed – the central host. Whereas in a decentralized authentication process, each network host maintains its own user authentication database and policies. He stated:

“Sure, it’s possible to generate a private key and a public key to manage your wallet yourself. Sending ETH is all about signing a transaction so it’s not that complicated. If all user authentication methods end up failing it’s going to be hard to reach mainstream adoption,”

The Co-Founder also spoke about ‘private blockchains’ and about the projects that are inspired by Ethereum:

“A lot of these projects ended up not going very far. Some of them ended up being not decentralized at all”

He also stated about these projects which fail and that he can’t blame them entirely. Buterin said:

“In a lot of industries, I understand that it comes down to compromises. Sometimes you have regulatory obligations that force you to centralize at least a bit.”

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