Crypto Compare has undertaken research indicating that only 16% of crypto assets are decentralized, and in 85% of projects, developers have the power to change the underlying code. The report was published on October 17th and indicates that 55% of the crypto assets are centralized while 30% are semi-centralized. The report uses the term ‘crypto assets’ to describe networks built on DLT with an associated token, as opposed to the numerous other terms.
The crypto assets taxonomy report
A taxonomy is essentially a logical classification of items. So the report is dividing up and analyzing various crypto assets into specific groupings. Due to the recent proliferation of crypto assets, some type of logical grouping is necessary. The Crypto Compare analysis divided the crypto assets into four natural groupings, which included legal, industry, the rationale to possess, and economic value drivers. Each of these groupings was then further subdivided. For example, under a legal classification, Ethereum and Bitcoin would be securities as opposed to security tokens. Alternatively, under FINMA, the legal classification is a function of what the token is intended to be used for, as opposed to how the network operates.
The report also features a piece on stablecoins, a new type of crypto asset that is pegged to an existing financial asset. This has an added benefit for traders who need to exit trades quickly without losing too much value. Trading from cryptocurrency to fiat is prohibitively expensive, but a stablecoin is a perfect intermediary. According to the report, there are three major types of stablecoin – centralized asset-backed pegs, collateralized, and decentralized algorithmic banks. Stablecoins are expected to potentially bring cryptocurrency to the mainstream, as traders and institutions have a bridge between traditional assets and crypto assets.
The current state of crypto centralization
The report is extensive, but the key points are again about centralization. It is no secret that the world of cryptocurrency seems to be becoming increasingly centralized, especially as mainstream institutions are coming on board and governments are creating their own cryptocurrencies.
It can be quite difficult to obtain pure and utter decentralization in any project, as there are various types of centralization. After all, in a free market, there is nothing stopping anybody from purchasing as much of a cryptocurrency as they wish, resulting in ownership centralization. Even Bitcoin, quite possibly the most decentralized of all cryptocurrencies, has somewhat concentrated wallet ownership and extensive mining centralization in the Chinese region. Details on the centralization levels of various cryptocurrencies can be obtained from an open source privacy coin matrix, as well as other key features.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.