Time is running out for retail investors? Mass adoption drives crypto toward centralization

Original title: "Massive adoption of encryption technology may lead to centralized encryption technology"

By | Joël Valenzuela

Translator |

This year was the year that cryptocurrency finally started to go mainstream.

From Musk and Tesla investing and accepting Bitcoin payments to the recent token (NFT) craze, the era when blockchain technology was dominated by cypherpunks and programmers has passed. However, despite this, blockchain technology has not yet developed to a stage where ordinary people can use it easily and freely.

And the longer it takes for non-technical users to learn about cryptocurrencies, the greater the risk that centralized companies’ mission to improve usability will affect censorship resistance as this relatively new technology finally surges into mainstream consciousness.

Let’s now look at the current state of cryptocurrency usability.

Bitcoin’s ‘flash or crash’ approach faces obstacles

When Bitcoin chose to refuse on-chain scaling via large blocks of transactions, it essentially placed all of its hopes and dreams of being usable as an everyday currency on second-layer scaling solutions (Layer 2).

The most important of these is the Lightning Network, which, while operational, has introduced a host of complexities, including balancing liquidity, opening and closing channels, and routing payment paths.

Perhaps most challenging for new users, moving funds from off-chain to the Lightning Network requires an on-chain exchange, triggering those unpleasantly long confirmation times and high fees.

All in all, this is a disappointing experience even for savvy cryptocurrency users, and definitely not suitable for a novice.

Thankfully, developers have deployed a new generation of Lightning Network wallets that significantly improve the user experience to a level that is accessible to non-technical users.

Second-generation Lightning Network wallets do this by outsourcing some of the functions of a regular Lightning Network node (including opening channels, managing liquidity, automatic backups, etc.) to wallet providers.

Essentially, they are similar to custodial wallets in almost every way, except that they are not custodial wallets. That is, users control their own funds, and the service provider cannot take away (or deny users access to) their funds.

Basically, there are two main goals that need to be prioritized: ease of use and user control over funds.

If you use a second-generation Lightning Network wallet, you can easily send and receive information without being affected by the complex inner workings of the network, and you still have full control over your funds at all times. Compared to using Bitcoin only on the chain, you only need to trust the Lightning Service Provider (LSP).

This approach leaves more and more users reliant on a shrinking number of large LSPs to easily move their Bitcoin, similar to the traditional financial system where exchange processing is organized around a small number of major payment companies.

Of course, many users will still be able to control their own funds from inflation and currency manipulation, but aside from a few tech enthusiasts who can run their own nodes, most people will rely on centralized entities to do the work.

User perspective: Even competitors don’t like this

Not every cryptocurrency will suffer from a congested mainchain and the complications of Layer 2. In particular, major Bitcoin forks and projects like Litecoin have low on-chain fees and regular confirmation times.

However, even something resembling this experience is not enough for the end user. No matter what Bitcoin Cash advocates say, the operation is not instant, and payments or deposits into the platform through many popular payment processors still require waiting for multiple confirmations, which can take anywhere from several minutes to hours.

The average user won’t understand why they have to wait, or why the wait time is variable, or that the service should be able to trust zero confirmations but doesn’t. The user just knows they have to wait, which is a very frustrating experience for the user.

However, not all platforms and services fully understand the underlying technology, so the experience may be hit-or-miss. However, there are other networks that can also complete in seconds, but this may come with significant network reliability trade-offs.

Usernames – a disturbing privacy issue

Even if the problem of fast, reliable redemption is solved, there is still one important key to mass adoption usability: usernames. While QR code scanning can be simple enough, copying and pasting long cryptographic hashes is not an easy task for network, remote and other situations.

We need a simple, social way to get people to pay using human-readable usernames and contact lists, and there are already quite a few systems that do this to some extent.

However, most make significant tradeoffs between usability or trust, and solutions like the Ethereum Name Service simply resolve to a static address, which still often displays long and cumbersome addresses in user interfaces.

And it creates some troubling privacy issues by exposing your entire transaction history to anyone who can simply paste your address into a blockchain explorer.

The basis for inter-wallet operability is similar, but is further complicated by wallet-specific domains and implementations.

Crypto Exchanges Must Be Easier

Another solution is provided by HandCash, a popular BSV wallet that does not resolve static addresses and supports contact lists. The problem is that the solution is centralized: users must rely entirely on the company and its infrastructure.

There is a similar setup in the BSV ecosystem, where Paymail allows users to easily resolve to a new address each time without relying on a single centralized system. However, like email, Paymail relies on servers hosting your domain name, and the only option for censorship resistance is to host your own servers.

Additionally, there is no universal contact list system. Both of these friendlier solutions unfortunately move in the direction of centralization, as easy-to-use solutions are difficult to decentralize.

Again, DASH is focused on providing the most ideal solution to the usability problem - building a distributed application layer that includes providing usernames and contact lists in an intuitive, user-friendly, and fully decentralized form at the protocol level.

However, this solution, which has been in the works for years, is still in the testnet, and it remains to be seen whether it will be released in time to influence the mass adoption trend of centralized services.

summary

The real risk, of course, is not that crypto-based ease-of-use solutions will be difficult or impossible to succeed. The greater risk is that fully custodial solutions will easily win out, leading us back to the old financial system we were trying to escape, only (allegedly) backed by crypto.

We’ve seen examples of this, from incentivized blogging platform Publish0x encouraging withdrawals directly to centralized platforms to avoid high Ethereum fees, to American fast food giant Chipotle distributing Bitcoin exclusively to exchange platform accounts.

In addition, payment giants such as PayPal and Visa are also beginning to get involved in the cryptocurrency space. If we are not careful, in the future we may spend cryptocurrencies through the same giant companies and services, still at the mercy of those players.

We are at a crossroads: create ease of use in a decentralized way, or let the power of mainstream players accelerate the death of decentralization. The challenge is daunting, and although the risks are too high, we cannot easily give up.

Are cryptocurrencies up to the task?