Centralization and decentralization seem to be opposing forces that gradually overcome or are overcome by each other.
Binance co-founder and CEO Zhangpeng Zhao (CZ) has recently expressed his own thoughts on centralization vs. decentralization. Binance published an article about his insights on its official website.
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“I believe the first thing to understand is that decentralization is not binary and not single-dimension,” CZ said. “There are multiple aspects to decentralization. Every aspect is a gradient scale, not simply black-and-white.”
Centralization Vs. Decentralization
Decentralization refers to the absence of centralized authority with ultimate authority over anything. With crypto, the same terminology implies that there is no control over the money by a central bank or financial institution.
However, the CEO believes that decentralization is not the goal itself but “a means to the goal.” The goal here is freedom, security, and ease of use. In addition, he discussed the impact of the number of validators on the centralization of a network.
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For reference, BNB Chain, the blockchain initiated by Binance, currently has 21 validators and barely crosses the Nakamoto coefficient of 8.
“You may hear people say, 'there are too few nodes or validators, so you are centralized.' While it is true the lower the number, the more centralized a blockchain becomes, there is no absolute number as a benchmark that everyone agrees on. It’s a gradient scale,” Zhao stated.
On Centralization of Popular Coins and Tokens
Zhao took the example of Ethereum, suggesting that Vitalik being a founder means he can influence the course of the ecosystem.
“Blockchains with clearly associated founders have this drawback. Bitcoin is more decentralized in this regard. In Ethereum’s defense, it has been forked a few times already too.”
Despite his links with BNB Chain, CZ says he’s “far less involved” with the ecosystem.
Additionally, Changpeng Zhao supports the idea that “Bitcoin is centralized because a few addresses hold a large number of coins.”
Nonetheless, he believes that “Dogecoin is even worse” since one top address holds 30% of the total supply, and the top 20 addresses hold more than 50%.
The CEO of Binance also asserts that CEXs are more popular today as they provide an incremental step for users to access crypto and can act as a bridge between centralized and decentralized systems. Finally, he states that the Binance ecosystem is “a big proponent of decentralization.”
“At Binance, we believe in taking incremental steps as well as providing users with options for all available tools. Binance invests heavily in the development of both CEX and DeFi solutions, and we will continue to be advocates for a future where freedom and security can go hand in hand.”
On the Flipside
- In Octpber 2021, Changpeng Zhao said that the “future of the industry lies in decentralization,” even though CEXs are more popular today.
Why You Should Care
Though we may debate about centralization vs. decentralization, DeFi platforms are still in their infancy. For the time being, many users may access DeFi for the first time through CeFi platforms, which will be their gateway to DeFi.
