Anonymous & Decentralized Blockchains: The Cornerstone of Crypto
In this section, I’m going to tell you about anonymous and decentralized blockchains!
The term “decentralized blockchain” is definitely something you’ve encountered, if you’ve spent even a day in the crypto space. In fact, we often get so numb to terms such as these, that we don’t even really give them much thought!
However, did you know that decentralization and anonymity are among the fundamental cornerstones of the crypto industry, as a whole? That being the case, however, these two concepts are also very controversial, especially when it comes to crypto regulations.
In this section, you’ll learn about decentralization and anonymity, as they relate to the world of crypto. More specifically, I’ll tell you what these concepts mean, how they relate to crypto, as well as why are they important for blockchain-powered projects, in general.
Let’s get to it!
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What are “Decentralization” and “Anonymity” in Crypto?
Before we can really get into the main points of this section, and analyze centralized VS decentralized blockchain technology, it’s important to break down what concepts such as a “decentralized blockchain” mean, to begin with! While it may seem self-explanatory at first, it’s like the famous meme of the iceberg - once you start looking into it, you see that there’s a lot more than initially meets the eye.
So, let’s start with decentralization. As the term implies, decentralization refers to something lacking a single, centralized governing authority. So, imagine that there are two shops in your town - one centralized, and the other - decentralized.
The centralized shop will function just like you’d expect - there are employers and employees, everyone has their own, designated roles and responsibilities, and there’s always some form of higher management that you need to report to.
With this traditional shop model, there is a set specific hierarchy within the system, and thus, there are designated parties that make the executive decisions about the direction that the shop will take - whether or not it will sell a specific chocolate bar, how many employees it will hire VS how many will be laid off, what are the salaries of each employee, and so on.
Now, the decentralized shop is where things get much more interesting. In this case, there is no single, central authority - no manager, director, or CEO to oversee the processes and give orders. Instead, each employee within the shop is responsible for the well-being of the establishment - they all make the executive decisions, all have a say in the direction that the shop is going, and are all able to make a huge influence on the end results.
Sounds awesome, but how does it work in crypto? Well, I’ll get to that - for now, I just want you to understand the general premise of decentralization, as a concept.
Next up is blockchain anonymity. Once again, at first glance, the term is rather self-explanatory - it’s when you are able to do something while remaining anonymous, or, in other words, without revealing your true identity.
Imagine a situation in an online game - say, something like League of Legends. When you play the game, you’re able to talk to your teammates, and write messages. However, you do so without revealing your true identity, and under some sort of an alias - thus, you’re able to remain anonymous, at least to other players!
Now, evidently, this isn’t an ideal example, since you’re still doxed to the company behind the game, especially if you make any online purchases on their platform. But we’ll get to that soon enough, as it regards to crypto.
Why are Decentralization and Anonymity Important for Crypto?
Continuing on with the section, allow me to give you a very quick history lesson - specifically, one that is related to Bitcoin.
As you may or may not know, the decentralized blockchain Bitcoin was created by someone known as Satoshi Nakamoto. The identity of the creator (or creators?) of BTC is unknown, to this day, but that’s beside the point - instead, let’s take a look at WHY Bitcoin was created.
The very first block of Bitcoin’s blockchain was created (mined) on January 3, 2009. The timing isn’t a coincidence, either - within this first block, called the Genesis block, Satoshi left a message reading:
"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."
This was a headline taken from The London Times. If you’re sharp, you might have connected the dots - Bitcoin’s inception came right after the Financial Crisis of 2008. The popular belief dictates that Bitcoin was created to “take the financial power away from governments and hedge funds, and give it back to the ordinary people”. I’m somewhat paraphrasing, but you get the idea.
Now, this should help you understand why decentralization and blockchain anonymity are so important for crypto, in a very fundamental sense. Many crypto enthusiasts believe that, in order to have full power over your money, you must remain anonymous, and that the technology behind that form of money - in our case, it’s the blockchain tech behind crypto - must remain decentralized, at all cost.
The same enthusiasts claim that, once centralization sets in, there’s always a risk for another financial crisis to happen, and - once again - big hedge funds and major banks would get bailed out, with your common, everyday people absorbing the full blow of the crisis.
In a super-quick nutshell, this is the core philosophy behind crypto - one that many enthusiasts hold, to this day. It’s a very controversial topic, though - the reason behind the controversy has to do with mass adoption, and a term called “KYC”.
“KYC” stands for “Know Your Customer”. It’s a term related to financial regulations, and essentially, it refers to the fact that all financial institutions must identify their customers and clients. This is true with cryptocurrency exchange platforms, as well.
On one hand, you have the philosophy behind crypto - blockchain decentralization and anonymity. On the other hand, in order for cryptocurrencies to become truly mainstream, and blockchain technology to be massively adopted and widespread, regulation is absolutely crucial - it would preserve order, and remove a huge chunk of potential scams and theft attempts from the equation.
So, as you can see, it’s a very tricky topic! Most people agree that regulation is the way to go - still, however, many crypto projects aim to circumvent this, to an extent. Partial decentralization, open-source code, doxed teams, and so on - it’s a huge topic that needs a separate section, of its own!
Now, do keep in mind that there’s a difference between blockchain-based projects and platforms such as cryptocurrency exchanges or lending services. With the former, decentralization is still completely possible, even with regulatory oversight - the aforementioned KYC regulations mostly imply to companies that allow individuals to buy, sell, or transact with cryptocurrencies in any other way.
Decentralization and Anonymity in Crypto
Up to this point in the section, we’ve talked about decentralization and anonymity, as standalone concepts, and I’ve also told you about why these concepts are so important to the crypto world.
Now, allow me to tell you about just how both of said concepts manifest themselves for your average crypto enthusiast!
So, starting off with decentralized blockchains, we must go back to the shop example I gave at the beginning of this section. In the world of crypto, there’s a term called “DAO”. Broken down, it abbreviates as a “Decentralized Autonomous Organization”.
That sounds super-fancy, yes, I know. However, it’s actually quite simple to understand. If you’d like to learn about DAOs in an in-depth manner, check out a section written on this topic - for now, though, let’s take an entry-level look at what they are.
A DAO is a community of people that all have the ability to vote on proposals, changes, updates, and other matters of a specific crypto project. This voting happens with the help of the native tokens of that said project. So, as far as our shop example is concerned, it would look a little something like this:
Each employee within the decentralized shop would have the ability to purchase or acquire special candies, depending on their dedication and impact on the way that the shop is performing. Every month, employees would be able to suggest changes to how the shop operates, as well as vote on different proposals made by others. In order to vote, you would need to place your candy into a special jar - the more candy it is that you place, the stronger your vote will become.
Naturally, in reality, the system is much more complex than that. But this should still give you a pretty good general idea of how DAOs work, and how decentralized projects are managed, in the first place!
Now, when it comes to anonymity, it gets even more interesting. Remember the computer game example I gave earlier? Well, when interacting with various decentralized, blockchain-powered projects, you would use your cryptocurrency wallet - your public wallet address would act as your alias on the blockchain!
In short, with the help of your cryptocurrency wallet, you are able to remain anonymous on the blockchain. All of the transactions that you perform will be public, for everyone to see, but no one will know that it’s YOU who’s performing those transactions - well, unless you tell them.
Final Thoughts
With all that we’ve talked about in this section, I want you to remember that we’ve only scratched the surface - both decentralization and anonymity are complex topics, as they relate to crypto! On top of that, nothing is ever black or white - whether it be KYC regulations, decentralized exchanges, anonymity, or else, all of these topics involve complex intricacies, and should thus be viewed appropriately, as well.
That being said, I do hope that this section helped you with clearing the major question up! Now that you understand the roles that decentralization and anonymity play when it comes to your everyday crypto-related experiences, you’re ready to start digging deeper into each of these topics!