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Is Bitcoin Truly Decentralized?

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The top buzzword you hear associated with bitcoin is “decentralization.” Everyone talks about the weaknesses of a centralized fiat currency and how a digital currency that runs on the blockchain can solve many of these problems.

Bitcoin (and other cryptocurrencies) have gained a lot of steam over the last year, but nobody has stopped to ask the question, is bitcoin moving towards decentralization?

Exchanges and Gatekeepers

Right now, almost all of the top exchanges for cryptocurrencies are centralized. They have a few shareholders who hold the majority of control, and with this comes the ability to censor the flow of funds.

Decentralized exchanges are on their way, but all of the currency decentralized solutions only allow for crypto-to-crypto trading, which is limited in its use.

Centralized exchanges also often manage the online storage of cryptocurrencies as well. The private keys stay in control of these exchanges, which is not only the exact same set up as leaving your money with a bank (and placing a large amount of trust in a single institution), but also creates a honeypot for potential hackers.

Maintaining custody of your private keys is something that is generally encouraged from a risk management perspective, but is also in line with the ethos behind bitcoin. Centralized exchanges retain a ton of data and have the power to censor the movement of funds.

Future regulation is still hazy for cryptocurrencies, and know-your-client laws require a certain amount of data to be stored by companies, but it is possible that these companies retain or sell this information in the future. The fact that your private key can be associated with you instantly takes away the anonymous aspect of cryptocurrency, which means you and your funds can be censored.

Mining in China

Examining this from a different angle, mining is an essential part of the governance and maintenance of the bitcoin network. The original idea was to have a widely distributed network that was so large that it was immune to any single entity that wished to dominate 51% of the currency and therefore control the fate of bitcoin.

However, this has not proven to be the case. There are an estimated 12,000 nodes currently in operation on the Bitcoin network, and they collectively have the power to vote on resolutions like SegWit 2x. As more nodes are added to the network, it has begun to trend towards a higher level of concentration in China. Now, have approximately 70% of the nodes controlled by entities within China.

Bitcoin doesn’t suffer from some of the same problems as other cryptocurrencies like Ripple, where the management is explicitly controlled by a single person, the CEO of the company. Satoshi Nakamoto designed and released bitcoin, then disappeared. The development team has the power to propose certain innovations, but it is far from an autocracy.

Many cryptocurrencies are set up in a way where a single player can steer the future with little oversight. This past form of governance is beginning to disappear and presents another reason why a democratic (and decentralized) solution like bitcoin has future potential.

The Bitcoin Ethos

Bitcoin’s promise is to deliver a digital currency that runs independently of any meddling top-down management, but right now this doesn’t seem to be the case.

Until the crypto ecosystem is run in a way that makes it possible to acquire, exchange, and store cryptocurrencies in a completely private manner, the innovations are negligible. Additionally, having a high proportion of the nodes in operation controlled by a country that doesn’t allow free access to the internet is another point against the decentralization of bitcoin.

None of this is to say bitcoin is going to fail or has no merit, but that “decentralization” isn’t a core trait it currently possesses. Certain changes are necessary to improve the robustness of the network, and it is highly possible they will be enough to maintain bitcoin’s dominance in the cryptocurrency world.

Featured image courtesy of Shutterstock.

 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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  1. bitfalls

    March 25, 2018 at 9:51 am

    Indeed. Here’s three more posts about worrying weaknesses: https://bitfalls.com/?s=isps

    It’s going to need a hardcore shift in what’s powering it – in particular PoW – before it can become what it was meant to be.

  2. Mister.Ticot

    March 25, 2018 at 1:47 pm

    It’s nice to have some writings about philosophy & ethics here on hacked.

    As sidenote decentralized exchange sometimes allow for national currency trading. I hold euros on Stellar block chain for example. It’s not real Euros but in a bank account it’s a promise as well right?

    • tommudd

      March 25, 2018 at 9:15 pm

      How come I cannot log in???

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Bitcoin

Bitcoin Price Consolidates After Steep Loss as Market Cap Holds Below $100 Billion

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Bitcoin’s market capitalization remains firmly capped below $100 billion on Friday, as prices struggled to regain momentum following a catastrophic selloff earlier in the week. Although bitcoin remains firmly in the grip of the bears, price action over the last 24 hours suggests the worst of the downshift had passed.

BTC/USD Update

The bitcoin price is currently trading at $5,555.00 on Coinbase, having gained 2.6% over the previous 24 hours. The leading digital currency is still trading at a premium on Bitfinex, though the price spread has narrowed to around $120. BTC printed a low of $5,530.90 on Bitfinex but has since recovered near $5,674.

Aggregate pricing data provided by CoinMarketCap show a 24-hour return of 2.3% for BTC. Based on those metrics, the digital currency is averaging a price-per-coin of $5,616. That gives bitcoin a total market capitalization of $97.6 billion, down from $111 billion earlier in the week.

Bitcoin suffered a double-digit loss on Wednesday, with prices eventually piercing below $5,200 in the following session. That marked the lowest level in well over a year. At the same time, the broader cryptocurrency market plummeted to a low of around $176 billion as altcoins and tokens lost nearly $30 billion in value in less than two days.

At the time of writing, the combined crypto market cap had recovered to around $184.8 billion, though trade volumes had declined by roughly a quarter to $18.8 billion.

Virtual currency exchanges processed more than $6.3 billion worth of bitcoin trades in the last 24 hours. BitMEX, a leading derivatives platform, processed a whopping 29.3% of all bitcoin trades. No other exchange even came close in terms of daily turnover.

Recovery Likely

Bitcoin’s steep and sudden reversal followed a period of unprecedented calm for the virtual currency. As of Monday, bitcoin’s volatility index had fallen to the lowest level in over two years. The 30-day volatility index has since more than doubled to 2.15%, according to bitvol.info.

The sudden rush to liquidate BTC and other crypto holdings occurred on the eve of the bitcoin cash hard fork. The fork, which was initiated Thursday, has divided the bitcoin cash community into two camps with an ensuing tug of war over hash rate and user support. At the time of writing, the bitcoin ABC implementation was in the lead in terms of blocs mined.

Bitcoin’s massive decline, which has pushed prices deeply into oversold levels, is likely to be scooped up by bargain hunters in the coming days. The means a return to $6,000 – a level commonly associated with mining costs – shouldn’t be ruled out. If history is any indication, the market has a vested interest in keeping prices above that level.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 665 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Analysis

Crypto Update: Coins Consolidate After Key Breakdown

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The cryptocurrency segment is still under the influence of this week’s key technical breakdown that carried several majors below crucial support levels. Bitcoin’s moves have been dominating the market in recent days, and as the most valuable coin formed a short-term bottom, the top coins entered a choppy consolidation phase, retracing some of their steep losses.

Ripple and Stellar continue to outperform the broader market from a technical perspective, and some other coins, like Ethereum and Monero are also holding up above their previous bear market lows, but the overall picture is still overwhelmingly bearish in the market. The total value of the coins is slightly above the $180 billion mark, but further losses are likely in the coming weeks, with all of the majors being well below the breakdown levels, confirming the move.                

BTC/USDT, 4-Hour Chart Analysis

Bitcoin found support near the $5350 price level even though it spiked as low as $5200 during the rout, while the bounce carried the coin up to $5650. The breakdown is clearly intact in BTC and our trend model remains on sell signals an all time-frames, with a test of the $5000-$5100 zone still being likely in the coming period.

Bitcoin faces strong resistance in the long-term zone near $5850, with further key levels at $6000, $6275, and traders and investors shouldn’t open new positions here, with the long-term downtrend clearly being intact.

XRP/USDT, 4-Hour Chart Analysis

Ripple overtook Ethereum in terms of market capitalization again, thanks to its relative strength this week, and the coin is still clearly holding up above the long-term support zone between $0.42 and $0.46.

That said, our trend model is still on a short-term sell signal, and given the bearish segment-wide trends traders shouldn’t enter new positions here, even as the coin will likely be among the leaders of the future rally attempts. Further support levels are found near $0.375 and $0.355, while resistance is still ahead at $0.51, $0.54, and $0.57.

Ethereum Holding Its Ground above Bear Market Low

ETH/USD, 4-Hour Chart Analysis

While Ethereum failed to recapture the $180 resistance level during the bounce, it also avoided a sustained move below the previous bear market low near $170, despite the spikes towards the $160 support. Ethereum short-term stability is a slightly positive sign, but without further signs of strength, the coin remains in a clearly bearish technical setup. With that in mind, traders and investors should still stay away from the coin, as odds still favor the continuation of the broader downtrend.

LTC/USD, 4-Hour Chart Analysis

Litecoin continues to trade below the $44 support/resistance level after the clear break to new bar market lows, and it remains one of the weakest major from a technical perspective. A move towards the next major support zone near $38 is likely in the coming weeks, even if a bounce up to the $47 level is in the cards. Litecoin is on sell signals on both time-frames in our trend model as well, with further strong resistance levels ahead at $51 and $56.

EOS/USD, 4-Hour Chart Analysis

EOS is hovering around the key support zone near $4.50 since a spike towards the bear market low near $4.30 during the steep selloff. The weak bounce didn’t change the technical setup, and the coin is still likely to fall below the previous low, as the declining long-term trend is clearly intact. Our trend model is on sell short-, and long-term trend signals, with strong resistance levels ahead at $5 and $5.35.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 396 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Bitcoin

Bitcoin Price Rebounds After Market Evacuation; XRP Kickstarts Decoupling Process?

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After two days in which $38 billion left the global crypto market cap, anyone who was in doubt over the fragility of the market at large has now been firmly answered.

Two competing theories have arisen over the source of the crash, with many suggesting the ongoing Bitcoin Cash hardfork saga as a possible culprit.

However, the more likely explanation appears to be the closing of Bitcoin future trades on the Chicago Board Options Exchange (CBOE). The same thing happened on the exact same date last year, right before the big bull run, and can be explained by traders selling off BTC just before the closure date (to be bought back later at a cheaper price).

Bitcoin Price Stabilizes…?

Bitcoin actually withstood the worst of the dip for the first few hours on Wednesday, and it originally  looked like we were witnessing an altcoin-only crash.

But eventually BTC got dragged into the mess and sunk 15% down to the $5,358 mark. Since then the price has stabilized at $5,500, and it has been there for six hours at time of writing. However, the previous level of $5,600 was also held for six hours before eventually continuing to plunge, so this may not turn out to be the last of it.

BTC volumes hit six-month highs during the sell-off, reaching $9 billion – a volume not seen since May. Surprisingly, if we exclude the BitMEX derivatives trading, then the highest concentration of BTC trades have come from the BTC/JPY (Japanese yen) pair. The $300 million worth of trades on the Liquid exchange represents 92% of all activity on that platform, and the dominance of Japanese money in BTC’s charts is a rare sight.

The Great Decoupling

Even those who aren’t fans of Ripple and XRP have been noticing the coin’s tendency to move independent of BTC for a while now. There’s an idea circulating that XRP is in the process of decoupling from Bitcoin, and its reaction in the wake of the market wide crash lends credence to the notion.

Following the crash, XRP shot up by 9.4%, as the coin price rose from $0.432724 up to $0.473791. That’s the biggest growth out of all the major altcoins, and it was also enough to send XRP to second place in the market cap rankings, as covered here earlier.

While most other major alts neared September-August lows during the recent dip, XRP is still way above that range, and is already pushing past the $0.45 price which we had gotten used to during October’s stasis.

Like Bitcoin, if we exclude the XRP transaction mining on the ZBG exchange, the most concentrated trade is the XRP/JPY pair on Bitbank.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 89 rated postsGreg Thomson is a full-time crypto writer and digital nomad. He eats ICOs for breakfast and bleeds altcoins. Wherever he lays his public key is his home.




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