Who controls Bitcoin?

Unlike traditional assets tied to a centralised authority, Bitcoin operates on a decentralised network. In essence, no single individual or entity controls Bitcoin. But what exactly is decentralisation and why does it matter?

What is decentralisation?

Decentralisation is the cornerstone of Bitcoin’s design and sets it apart from traditional financial systems, such as money and banks. These traditional systems are controlled by a single entity or power, in many cases the government. This may sound beneficial, and there certainly are some benefits to centralised control, however this consolidation of control can raise problems, such as:

Lack of transparency:

Centralised systems tend to operate behind closed doors, lacking the transparency necessary for stakeholders to fully comprehend decision-making processes. For example, when interest rates are changed, the general public is given very little information on exactly what factors have influenced the decision.

Single point of failure:

Vulnerability to a single point of failure is a critical flaw in centralised systems. A technical glitch, malicious attack, or internal error can compromise the entire system. The Equifax data breach of 2017 serves as a good example. Hackers were able to exploit a vulnerability in the company’s website software to gain access to sensitive personal information for over 140 million people.

Arbitrary rule changes:

Centralised entities, be it governments or financial institutions, can modify rules and policies without full accountability or public input, potentially leading to misuse of power. This can be seen with credit card companies who change interest rates on their products without input from users.

Limited user control:

Users in centralised systems often find themselves with minimal control over their own assets or data, and are subject to decisions made by a central authority. This issue can be seen beyond the financial world. The Facebook-Cambridge Analytica scandal in 2018 highlighted how users had limited control over their personal data and how it was improperly used for political advertising.

Risk of corruption:

The concentration of power in centralised systems can breed corruption, as a small group or individual may exploit the system for personal gain. In 2015, a corruption scandal in FIFA saw many many high-level officials accused of accepting bribes, in order to warp the World Cup bidding process.

In summary:

These are just some of the problems that Bitcoin looks to solve. It signifies a fundamental reevaluation of how power and control are wielded. Decentralisation disperses authority among multiple participants, fostering a more democratic decision-making process. In such systems, consensus mechanisms and distributed governance play pivotal roles, ensuring that no single entity holds unchecked control.

Why does decentralisation matter?

Bitcoin belongs to everyone and no one. Satoshi Nakamoto, the creator of Bitcoin, arguably intended it to be more democratic and equal than our existing financial system. Because no one has full control over Bitcoin, no one is able to alter it to suit their own needs without the active participation of the wider Bitcoin community. And everyone involved in cryptocurrency – the users, the developers, the miners, the companies and the shareholders – are all incentivised to do what’s best for the network. This is because:

• Cryptocurrency businesses want the industry to grow in a healthy way. The more people that buy, store and sell Bitcoin, the more companies – and their investors – benefit.
  
• Miners want to profit from the continued growth of the network. They take on risk by investing time and money into their equipment, so they have a strong incentive to secure the network for the future. 
  
• The developers want to improve and grow Bitcoin. Whether that’s for financial, political and social gain, or because they enjoy the challenge.
  
• Users want the benefits cryptocurrencies provide: security, lower costs, great transparency, more control of their money and investment opportunities.

While these individual groups have their own aims and desires, they ultimately need and want Bitcoin to grow successfully for their own success. And because no single group has full control over Bitcoin, no one’s needs can be put ahead of the others. The decentralised nature of Bitcoin means that no one controls it, and everyone can have a say in its future.

How is Bitcoin decentralised?

It relies on a distributed ledger called the blockchain, which is maintained by a network of nodes (computers) around the world. These nodes follow a consensus algorithm to validate and record transactions on the blockchain. This means that distribution of control, decision-making, and validation exists across a network of participants rather than with a single entity or authority. 

Ethereum founder Vitalik Buterin gives a good analogy for decentralisation in a blog post, comparing it to the English language:

“Every English speaker plays their own tiny role in the ongoing evolution of the language. We use slang, jargon, abbreviations, words and phrases from other languages, or use words in ways that differ from their ‘official’ meaning. We can invent new words, but they are useless if no one else agrees upon their meaning. To be able to communicate effectively, we all agree to particular meanings by consensus.” 

Investing in cryptocurrency may result in the loss of capital as the value can fluctuate.