(Global) When it comes to cryptocurrencies or technology blockchain, the first thing that should come to mind are ideas like decentralization or user empowerment. In this article, we will discuss these aspects through the ability of the most important actors to influence the direction in which these digital assets can move.
Fiat currencies and cryptocurrencies
First of all, I would like to point out some special features of cryptocurrencies compared to fiat currencies such as the euro or the dollar. In a digital payment in regular currency (when paying by credit card), we need large intermediaries such as banks to process the payment. In contrast, when we use cryptocurrency, transactions are processed P2P network (equal). That is, a computer network that anyone can connect to to help verify and save the results of monetary transactions.
Another aspect worth emphasizing is that monetary policy for fiat currencies is determined by several central bank governors. Among these decisions is the determination of the amount of money in circulation, which directly affects citizens through inflation.
In cryptocurrency, these decisions are determined by computer code. For example, Bitcoin was programmed to have a predictable and staggered release of about 21 million units. Although it is often said that this form of Bitcoin issuance and the total amount is something immutable, the truth is that it depends on computer code and can be changed.
In this article, we ask who makes the decisions to change this code. A change in these characteristics would mean that the entities mentioned below are overwhelmingly identical, a fact that is highly unlikely, and thus the form of Bitcoin issuance is generally assumed to be unchanged.
Influential actors
First we can talk about users who want to send or receive transactions. They may express preferences about certain decisions to be made, but their direct power is small. However, in the long run, a cryptocurrency is meaningless without a community that uses it. Users can abandon one cryptocurrency in favor of another that better suits their needs.
Second, we focus on the most influential P2P network nodes miners, who are responsible for verifying and recording transactions. Miners earn cryptocurrency for contributing new blocks of information and collect commissions that users pay for their transactions. Their power to influence is great because they decide which version software used to process payments. A miner may choose not to update theirs software if you do not agree to any changes. Depending on the exchange rate, this can have different consequences.
Some changes only require a majority of miners to accept the new one software for the new rules to affect the entire network. On the other hand, other types of changes require all participants to update theirs software. If this does not happen, then the consequence is the division of the system into two parts depending on the version of the system. software every miner.
For example, in 2017, Bitcoin Cash emerged out of a debate over how to increase Bitcoin’s scalability. In part, some of the miners who decided Bitcoin Cash They rejected the correction of the error in the software bitcoins. ​​​​​​While a bug fix seems like a good thing, this fix allowed for layers on top of Bitcoin that allow transactions to be processed without miners receiving fees.
Developers and platforms
Another important part is the supporting developers software. Although the protocols are open and anyone can implement these applications, the truth is that some of them attract the majority of users. Thus, developers play a fundamental role in the advancement of cryptocurrency. However, they do not have absolute power, unlike what happens in centralized programs. Eventually, if they don’t make the improvements demanded by other actors, someone will create an alternative application.
Other influential players are centralized platforms related to cryptocurrencies. An interesting example is exchange sites. The power to offer the exchange of a particular currency gives them great leverage. A few months ago, we saw some exchanges withdraw from offering cryptocurrencies that were too private.
Also, when a currency split occurs, as in the case of Bitcoin Cash, exchanges must decide which option to support and how. In addition, these websites store the coins of thousands of users, allowing them to provide or reduce liquidity and influence the price.
Regulators
Finally, I would like to mention other external agents, such as governments making laws about legality of digital assets, the environment or privacy that directly affect the decisions of the participants mentioned above. We’ve seen how legislation is pushing miners out of business or prompting the liquidation of coins on some exchanges.