The crypto space has a long way to go before it becomes an everyday part of mainstream society. Before that happens, many issues need to be resolved so the space can provide the proper features that set it apart from centralized banking and government issued money.
Where the problem was first highlighted
Just several days ago, another major problem was exposed in the heart of crypto. Crypto is supposed to be decentralized, however, the biggest crypto exchange in the world is Binance, which has a central authority and is set up more like a traditional financial institution than a decentralized platform. Binance CEO Changpeng Zhao – amidst the Russia Ukraine conflict earlier this year – said Binance would ‘remain neutral’ and allow Russians to access and trade their Rubles for cryptocurrency on the exchange, despite global sanctions on Russian bank accounts.
While this seemed like the right call for cryptocurrency, the fact they had to make the decision under pressure during a tense global situation highlighted the issue of a centralized authority having the choice, rather than the technology and mechanisms simply existing and functioning as they should on a decentralized trading platform. Having a central authority decide what they are going to do additionally undermines the values of decentralization, as they could pick and choose depending on the scenario, where they could make a decision based on what benefits them.
Binance goes against decentralization
Surely enough, Binance ended up contradicting themselves. As Bitcoin fell 20% last week, Binance halted all Bitcoin transactions as selling pressure increased. To the dismay of traders, they could no longer sell their Bitcoin, reminiscent of the phrase “Not your keys, not your coins.” This action clearly violates the values of decentralization, and Binance may have exposed themselves to be more of a crypto bank or broker than a decentralization-friendly component in the crypto space. Binance cutting off Bitcoin trading suggests sneaky dealings and overleverage behind the scenes, something that Terra Labs did with Luna and UST shortly before they came crashing down to zero. This move from Binance, as well as lending platform Celsius, which did the same, is reminiscent of the run on the banks in the early 1930s or when Robinhood paused trading due to the Gamestop and AMC short squeezes in 2021.
Crypto is NOT where it needs to be from a decentralized standpoint
Binance is the largest crypto exchange, and Celsius is a major lending platform as well. The unfortunate reality is the majority of volume is coming through large centralized institutions rather than using decentralized platforms. These centralized platforms are acting as banks and brokers of the crypto world, and for now, it seems they’re here to stay. Crypto has a long way to go before it sees decentralized platforms take over, but hopefully, these instances of centralized platforms abusing their authority provide a real example of why decentralized platforms are far better than centralized institutions.