TD₿: Against the Minimum Majority Measure by David A. Harding
TL;DR There is no way to objectively measure decentralization except by attempting to change Bitcoin’s consensus rules.
Yesterday, SEC Chairman Gary Gensler published a transcript of a speech he gave at the Practicing Law Institute’s SEC Speaks conference about the SEC’s role in regulating the broader cryptocurrency market.
The speech was titled, “Kennedy and Crypto,” a tribute to Joseph Kennedy, the first Chairman of the SEC, who was quoted as saying, “No honest business need fear the SEC.”
The speech gave more clarity on what Gensler believes should be and shouldn’t be considered a security. He reaffirmed his position that most cryptocurrencies today fit the definition of the Howey Test and, thus, should be regulated like securities.
I felt the best part of the speech was when Gensler posed a question to all the lawyers in the audience. He asked, “Do you represent any clients regarding their token projects? How exactly were you hired? Did you enter into an engagement letter? I’m going to guess that you had a client. I’m going to guess that you did not take on the work on behalf of a dispersed, unidentified group of individuals in an “ecosystem.”
What Gary is getting at here is, how decentralized is your project? If a foundation or centralized team can hire a lawyer to defend them in court, well, that doesn’t sound very decentralized at all, in fact, that sounds a whole lot like a company.
It is hard to argue against Gensler’s logic here, but how does one measure the decentralization of a project exactly? The answer is that you can’t, at least not objectively.
Most of the metrics frequently cited to measure decentralization, such as the number of nodes, developer commit listings, exchange trading volumes, etc., fall short because they are easily gameable, and their volumes can be faked.
David A. Harding wrote this blog post that discusses some of the flaws of the metrics people have used to measure decentralization in the past. (07/28/2017).
In the end, the only way to measure whether or not a project is sufficiently decentralized is by looking at outcomes. Only through attacking a project, and trying to change its consensus rules, can someone really know if it is decentralized or not.
Bitcoin has never changed its consensus rules in its lifetime. It has done so while constantly operating in a highly adversarial environment. Its track record speaks for itself — Bitcoin has proof of work.
In other words, the proof is in the pudding. Bitcoin is the only cryptocurrency in existence that has proven to be decentralized because only Bitcoin’s consensus rules have remained unchanged since its inception.
No honest business need fear the SEC —that’s true — but also no truly decentralized cryptocurrency needs to fear them either.
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“The most important part of Bitcoin is its decentralization because if it were too centralized, then many of its other key properties, like its censorship resistance and its fixed supply, would be at risk. We can no longer trust a centralized monetary system.” - Wicked Smart Bitcoin, Bitcoiner
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