Crypto was founded upon one unifying principle: decentralization.
The Bitcoin whitepaper, the foundation upon which the crypto industry was built, held this sentiment as paramount to the progress of the industry itself. The first line suggests “a purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
Pseudonymous author Satoshi Nakamoto’s inclusion of “disintermediation” and “no third parties” is crucial. It lays out his and many others’ dreams for a completely decentralized space. In 2022, the current exchange market and its enduring fallibility is the conversation most of us are having on a daily basis; some exchanges are not as decentralized as they seemed.
So today, in light of the Celsius bankruptcy and Three Arrows Capital’s insolvency, we must ask ourselves two questions: How have we strayed so far from our founding principles, and how can we move forward to protect the assets we have accumulated?
From the beginning, the intention for crypto was to facilitate financial transactions, amongst peers, without the need to depend on a trusted third party or an intervening financial institution.
Over the last few years, we have seen a trend start to emerge in the sector; a trend of centralization in the crypto market where people have become comfortable trading and holding their crypto assets in exchanges or organizations. However, we can now see that this practice equates to the “trusted” financial institutions of traditional finance. The problem that arises from this trend is of course that these institutions are not always as robust as they seem. Many of the woes of the past few weeks are solely down to the wreckless over-leveraging of a select few seemingly trustworthy centralized institutions.
These centralized organizations within the crypto industry, in actuality, still present the same pitfalls and vulnerabilities that are ever present in traditional financial institutions: Access is guarded, transparency is lacking, political pressures often play a role, and liquidity remains a highly pertinent issue. All of these characteristics culminate in the restriction of withdrawals and fundamentally, the blocking of access to assets not truly held by their rightful owners.
Put simply, many users and crypto holders within the space are investing and trying to secure their assets in structures that have the exact same flaws as the traditional institutions that crypto was designed to overcome.
If nothing else, the events of the past few weeks have served as eye openers to many users as we all now begin to re-examine the ecosystem we occupy. It’s time we rethink and challenge the status quo, looking at how we can protect not only ourselves but also other industry participants.
Security and ownership tend to go hand in hand when discussing crypto holdings. In the case of assets like digital artwork, the decentralized, cold storage option begins to make even more sense. Investors and collectors have no reason to keep their assets online. Many non-fungible token (NFT) and digital artwork holders plan to hold on to these assets for the long term, as is the nature of artwork, not to be traded or sold, but to be enjoyed. As a result, security becomes paramount.
To think of it another way, you would not store an invaluable masterpiece in an open, public area without first investing in security measures. So why would you take that same risk with your digital artwork? This type of safeguard is exactly what cold storage provides. The crypto equivalent to security staff, cameras and alarms — without the fuss.
Crypto holders, both novice and nuanced, are coming to the realization that ownership is relative. However, when holding crypto on a centralized exchange or through a crypto broker, true ownership is next to impossible. So, where do we go from here? As attitudes shift, we’re seeing an uplift in demand for self-custody solutions as holders begin to see the value in truly owning the assets they hold.
In the crypto industry, most innovations come from centralized parties that do decentralized things. However, in the end, market crashes and fluctuations have revealed the true colors of many of the industry’s innovative leaders. If you take a misleading party and you add under-collateralization and over-leveraging, you get a recipe for disaster; this is where we now find ourselves.
We are witnessing an unprecedented, pivotal time of change within the crypto sphere. Moving away from exchanges and crypto brokerages towards decentralized mechanisms of holding crypto is not only the most sensible option — it is the industry’s last hope and main differentiator from the perils of centralization. As more of the market begins to come to this realization, the focus will naturally shift to what we can control, which is how our assets are held.
A lot of the infrastructures needed for truly interacting in a decentralized manner are yet to be built. The structures we do have are not yet widely available. So, while there is work to do, we can see that the building blocks are beginning to be erected, with a truly stable foundation of decentralization at their core. In time, the industry will become a place where decentralization comes first and where people truly own their assets. Then, we will all enjoy the benefits that lasting sector growth, financial empowerment and security can bring.
Ruben Merre is the Brussels-based CEO and co-founder of NGRAVE, the creator of “ZERO,” a hardware wallet for crypto storage. He is also a repeat tech entrepreneur. He holds an M.Sc. in Business Engineering (MBE) from the University of Leuven and a LEAN Six Sigma Black Belt. Ruben also completed Oxford University’s Blockchain Strategy Programme.
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