Ethereum and Binance Smart Chain: DeFi versus CentiFi : is it as simple as good versus evil, and cheap versus expensive?
Decentralization
In my article Blockchains 101 I discus the five characteristics of a decentralized blockchain, including the trait Distributed Network. This means that there are computers scattered all over the world, running a copy of the blockchain software. And they are all verifying transaction on the Blockchain, and they are all in agreement on the true or correct record of all transactions, which is called Consensus.
This distribution makes it nearly impossible to falsify the ledger, as you have to control at least 51% of all computers running the Blockchain software to force the other 49% to accept your falsified entries. This is called a 51% attack, and the great difficulty in achieving it is a security feature.
The distributed network feature is embraced by the Ethereum blockchain with its hundreds, if not thousands of computers running Ethereum blockchain software and verifying the integrity of the ledger. And all the computers agree on which ledger is true and accurate. (Consensus)
Centralization
However Binance Smart Chain is a commonly thought of as a modified Proof of Stake system with a limited number of computers running copies of the ledger and verifying its integrity. There only 21 computers in their network, so only 21 computers in the world running the software validating the Binance Smart Chain blockchain ledger. Additionally, these node operators are thought to be Binance controlled. It is this small number of nodes and the perceived or actual centralized control, which is responsible for cheaper fees and faster transactions. But it is because of these these things, that Binance Smart Chain is sometimes referred to as a centralized form of decentralized finance, so it is called CentiFi instead of DeFi.
Additionally, in terms of security, it is in theory less secure to have a network of 21 nodes, then a decentralized network of thousands of nodes because of the relative ease of obtaining control over 51% of the 21 nodes, versus getting control over 51% of thousands of nodes. This would allow the control of the transaction validation process, compromise the security of the ledger and allow a bad actor to simply send all transacting tokens to their wallet and thus steal funds. All this is theoretical of course, we have no direct knowledge of the security protecting these nodes, and there are no documented 51% attacks on the Binance Smart Chain node network that I know of…
Decentralization Good? Centralization Evil?
Thus we have an ideological dilema. Does a proponent of decentralization stay with applications like Uniswap, on the Ethereum blockchain, or does the investor migrate to a centralized network, Binance Smart Chain and use PanCakeSwap. As we can see by the growth of PanCakeSwap, and it’s eventual surpassing Uniswap in Total Value Locked, it appears that a large percentage of investors are more pragmatic then ideological. The high cost of transacting on the decentralized network Ethereum appears to have over-ruled any ideological objections to centralized finance because of the lower fees and faster transaction times. And to be honest, having traded on both, the difference in fees is sometimes a factor of 100.
But again I wonder and ask you to consider is it really just cost over ruling investors desire to promote decentralization?
Or is there more to it then that?
I think there is one more concept to consider: the degree of decentralization and centralization.
Centralization and decentralization on a Spectrum or continuum.
DeFi systems provides many opportunities to grow wealth and change lives worldwide. These opportunities are provided within the framework of decentralized blockchains, but the degree of decentralization varies everywhere. The original cryptocurrency exchanges were very centralized, and the decentralized exchanges which followed them contain centralized and decentralized elements. Additionally, if a decentralized application has transaction fees which make it unprofitable for smaller investors to use, these transaction costs have unintentionally created an economic barrier to entry which excludes small investors from DeFi. This is paradoxically the opposite of what DeFi was suppose to achieve. Here the centralized finance has lower economic barriers to entry and is more inclusive then the decentralized exchange or Blockchain.
So things are not black and white in terms of decentralization and centralization. The spectrum is wide. It appears that the more informed you become, the less certain and rigid you become.
We are on a journey my friends, not everyone you think is your friend is a friend, and not everyone you thing is an enemy is truly an enemy. By their deeds shall we know their true character.
We must educate ourselves, so we can learn how to properly verify the results of individual and organization actions. And we must always preserve the freedom and open mind to choose what is really the best choice, despite labels.
Penned by my hand. Shortsegments
Shortsegments is a writer focused on cryptocurrency, the blockchain, non-fungible digital tokens or NFTs, and decentralized finance, where finance meets technology.
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