How Important Is Decentralization When It Comes To Investing In Blockchains?
The key innovation behind crypto that makes this non-tangible asset valuable is its trust(lessness) factor. It allows us to do business peer-to-peer with another person, confident that our transactions won't be reversed or blocked by third-party. This is because each blockchain network has some degree of decentralization.
Some people argue that cryptocurrencies like Bitcoin and Ethereum are far more decentralized than blockchains such as EOS, Telos, and WAX. They argue that those chains should be avoided as they are less secure and more easily censored.
While it's true that Bitcoin and Ethereum have more nodes validating transactions, the majority of those nodes belong to mining pools. And just three or four of those mining pools control greater than 50% of the hash rate, meaning, in theory, they could collude to censor transactions on the network.
They don't, however, as none of them would benefit from this kind of tampering. For if they did, the value of their Bitcoin and Ether would plummet, and investors would seek to move their capital to more secure, decentralized chains.
Networks like WAX and Telos have only 21 primary block producers, which typically aren't anonymous, so we can be confident that they are in fact distinct organizations.
Over the last few years, both networks have grown and the respective WAX and TLOS tokens have accrued value. Neither the token holders nor the validators who are staking these tokens have an incentive to censor transactions, as it would cause the value of their tokens to drop substancially.
We have even more centralized chains coming out now, for example Ultra and Ronin, the Ethereum sidechain for Axie Infinity. These networks will have less than 10 validators, all appointed by the developers.
Although these chains are quite centralized, they are still transparent, and you can verify which account owns what, by using their public blockchain explorers. Again, these validators have no motivation to censor transactions, because they have substancial capital invested in the network.
It's possible that if these networks become successful enough, regulators could down on them and attempt to shut them down or force the validators to implement some kind of KYC procedure. Of course, the token holders will be working together to make ensure that doesn't happen.
As always, remember to not put all your eggs in one blockchain, as it's not impossible that one of these blockchains could experience censorship in the future. Always maintain a diversified portfolio in case one chain experiences technical difficulties or some kind of attack.
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Sources
https://etherscan.io/stat/miner?range=7&blocktype=blocks
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