Institutional adoption of blockchain can offer great benefits, as truly decentralized control often comes from the roots of centralization.
The power of blockchain technology to decentralize control of our financial economy is well documented. It is one of the cornerstones of the origins of the technology, with the genesis block of Satoshi Nakamoto’s Bitcoin (BTC) containing a reference to the 2008–2009 financial crisis: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
The message, although never explicitly outlined by Bitcoin’s creator, is from the headline of a London Times article dated Jan. 3, 2009 that details banks being bailed out by the British government. Bitcoin, according to Nakamoto, is a means of reforming this corrupt and inefficient financial system to create a fairer, more democratic system of financial governance.
What, then, would Nakamoto say to the current state of the blockchain and crypto industry? Increasingly, it is institutions rather than individuals that appear to be garnering control of the means of production in the blockchain sector.
Facebook’s announcement of plans for its digital payments platform, Libra, was the initial public icebreaker for many last summer. However, the reality is that many governments and incumbent institutions from a range of sectors — including the likes of Walmart, JPMorgan Chase and PayPal — have been quietly building blockchain operations and capabilities for several years now.
The recent decision by the United States Office of the Comptroller of the Currency to allow nationally chartered banks in the U.S. to provide custody services for cryptocurrencies is another significant affirmation of the legitimacy of crypto, which is likely to spark a race among financial institutions to build or acquire secure custody solutions.
Such centralization appears to be at odds with the vision of the fair, democratic system of finance envisioned by Nakamoto and the original cypherpunks. Critics decry the end of the decentralized blockchain utopia as governments and institutions adopt the technology — but the situation is far more complex than such a black and white reading allows.
Rather than institutions being fundamentally antithetical to the democratic ideals of crypto, I would argue that they are actually essential to fulfilling such a vision. The entry of centralized institutions to the crypto economy cannot possibly represent in itself a blow to the values of crypto. While public trust in centralized institutions may be at a historical low in countries such as the U.S., such institutions are not by their nature inherently malevolent or corrupt. The same counterpoint applies to decentralized organizations: They do not make inherently trustworthy or morally responsible actors. Numerous scandals in the crypto industry involving wallet hacks, initial coin offering scams and dubious projects illustrate that often, this is anything but the case.
Institutional adoption of blockchain can offer tremendous benefits to the blockchain ecosystem as a whole: It is a key step in the evolution of the sector, which can significantly scale up adoption from a limited cohort of tech-savvy users (limited in terms of gender, age range and location) to truly global demographic spanning markets that the fractured crypto industry is incapable of reaching in its current form.
To be clear, decentralization and democratization is still the end goal here. Truly decentralized control often comes from the roots of centralization, and in order to reach this next phase in the sector, a period of centralization is first necessary.
The same path is evident in that of the internet. A considerably decentralized service during its nascent phase in the 1990s, today a centralized control of web services by the likes of Google and Amazon has brought worldwide adoption. Increasingly, with legislation targeting the protection of user data and a growing public appetite for limiting the influence of large technology firms, a shift in the balance of power from institutions to individuals appears to be taking place.
What will be key to a successful transition is bringing institutions into blockchain the right way. Interoperability should be a core component of such a transition. A diversity of protocols developed by different actors and institutions is a net positive for the market — but only if these protocols allow for some degree of system interoperability. By doing so, users and developers will be able to both innovate across protocols and choose new services to adopt with low barriers to entry.
A considered, measured approach to adoption by institutions, as has been occurring, will also ease the transition by consolidating blockchain use cases. The distributed ledger technology sector has to date been overly obsessed with exploring every wildly conceivable use case for the technology, from Akon’s crypto city to commodifying time itself.
Large enterprises and institutions will ensure that value-driven use cases become the standard for the technology rather than unnecessary, unfit importation into projects for the shallow purposes of raising capital or grabbing headlines. Already, concrete use cases are becoming more coherent, with payments an early candidate likely to succeed as exciting projects such as Libra, Celo and Polkadot are all firmly establishing themselves in the space.
Institutional delivery of blockchain technology to a mass audience will see a new type of user engaging in the technology: one with little awareness, or even interest, in the technology. Such adoption will be a barometer of true success for the technology. Blockchain is one of a number of emerging technologies that society has at its disposal. When we finally stop talking about blockchain as a noteworthy aspect of a service in itself, we will know it has become an established part of the technology mainstream.
Make no mistake: Institutional adoption of blockchain is here, and it’s here to stay. The question that remains is how we can ensure that this process of adoption preserves the democratic ethos of the technology for the masses.
Doing so will be a challenge, certainly, but one that the blockchain sector is more than capable of meeting.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.