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Crypto is broken.

Satoshi Nakamoto’s bitcoin white paper envisaged a fairly-distributed unit of currency that could be accessed by anyone.

Yet the distribution of subsequent cryptocurrencies has increasingly favored a small cohort of deep-pocketed venture capitalists and industry insiders who have perfected predatory tokenomics that guarantee obscene returns at the expense of later investors.

Token allocations can be ‘worth’ billions with the right VC firms, market makers, and exchanges — centralized authorities incentivized to extract as much money from retail investors as possible, while returning little in the way of real value.

Decentralization, the core ethos at the heart of the bitcoin white paper, is now primarily an elaborate illusion created by these token projects to escape the wrath of regulators. It’s an illusion perpetuated by the creation of Swiss foundations, the purpose of which is often simply to legitimize the outsize influence of VCs and insiders through ‘governance votes’ — which are themselves foregone conclusions.

Venture capital is not inherently bad. But venture capital is, at its heart, supposed to be a game of poker in which the investors are professional players — educated gamblers who may lose a single hand, but whose read of the game over the long run gives them a vital edge.

Venture capital firms are not supposed to be the rake.

Worse still, firms invested in a specific protocol have no incentive to support projects that directly compete with their existing portfolio — leading to stagnation instead of innovation. Ethereum’s success, for instance, can be directly attributed to its first-mover advantage and entrenched interests, if we can agree that the state of blockchain technology has significantly advanced since its debut.

As predatory tokenomics have evolved, it has become harder and harder to find projects and teams that espouse the values that inspired Nakamoto. 

But buried beneath the avalanche of multi-billion dollar valuations for unproven protocols, there are still a few pragmatic decentralists who believe that cryptocurrency and blockchain technology can be an empowering force for good… and who act accordingly.

Crypto is broken. But it doesn’t have to be.

What is ‘pragmatic decentralization’?

Human systems gravitate toward some degree of centralization in almost every endeavor.

And that’s a good thing. Leaders need the opportunity to lead. Volunteers need the chance to serve. 

The progression from decentralized networks to somewhat centralized networks is a feature of human existence. Conversely, there are very few examples of centralized networks handing back authority and power to the masses (politicians and social media kingpins have a lot in common).

Consider a functioning representative democracy that centralizes taxes and the social benefits they are ostensibly designed to fund, like schools, roads and defense. Such a system needs leaders, planners, and people to execute the plan. This is healthy and desirable. 

And generally, a centralized structure like a representative democracy contains safeguards to prevent the accumulation of too much power by any individual or entity.

Yet in the United States, for example, these safeguards have been weakened over the last half a century by the powerful and the rich. Instead of term limits for legislators, we have a gerontocracy in which the incumbents refuse to relinquish their hold on power. We have a politically-appointed Supreme Court that erodes accountability to the people. We have an executive branch that has recently taken an expansionist approach to its legal authority.

An effective network comes with checks and balances. (The US Constitution is one of the most extraordinary documents in history, precisely because of its deference to this fact.)

But politics, media, economics… in fact all of the bedrocks of a functioning society have trended toward over-centralization for years. The internet, once considered a potentially democratizing force for good, has devolved into a highly-controlled environment in which a few unelected corporate officers wield almost unimaginable power over the algorithms that feed us information and shape our daily lives. 

Like late-stage communism, in which cronyism and corruption terminally infected the increasingly-centralized halls of power, late-stage capitalism is proving that there is a limit to the lifespan of an economic system that concentrates power in the hands of too few.

Total centralization is strangling society. But total decentralization is not the answer.

Instead, we should look to pragmatic decentralization as a guide. A macro philosophy that (unlike communism) celebrates the best creative and entrepreneurial efforts of the individual, but that (unlike late-stage capitalism) doesn’t cement political or economic control with any one person or group.

Pragmatic decentralization acknowledges that humans need to centralize their efforts to achieve common goals, but that over-centralization results in ‘common goals’ becoming the goals of those who hold the reins of power.

To continue with the example of the United States’ political system, we are likely looking at a 2024 presidential contest between Donald Trump and Joe Biden — a contest few want to see, but that centralization of power has made almost inevitable. The common goal desired by the majority (younger, less polarizing candidates) has given way to a centralized goal (the preservation or reclamation of power by aging candidates and their lobbies).

Tokenized economies hold the potential to speed-run decentralized governance experiments at scale, as we consider what the practical elements of pragmatic decentralization actually look like. 

But as mentioned, the crypto industry has run straight into the centralization trap and its alluring promise of riches and power for the few who make it there.

To summarize: Bitcoin emerged as a response to centralized banking failures in 2008. But instead of disrupting the established order, the financialization of crypto has simply duplicated economic centralization, albeit with different characters at the apex of the pyramid. 

Koinos: A decentralized alternative to predatory layer-ones

In early 2020, TRON founder Justin Sun and his exchange Poloniex, aided by Binance and Huobi (representatives of which both claimed to have been duped by Sun) executed a ‘hostile takeover’ of the STEEM blockchain that resulted in several key members of the development and communications team resigning from Steemit, the company behind the chain.

Those team members vowed to create a decentralized alternative to existing blockchains that would be immune to hijacking by wealthy or nefarious individuals or entities.

Having witnessed the issues that caused the acrimonious STEEM affair firsthand, they intended to build the smart contract-compatible blockchain that they would want to build on themselves.

It would solve multiple problems relating to governance, power, cost, upgradeability, environmental issues, and accessibility, with the ultimate aim of empowering developers to give people ownership of their digital lives.

  1. It would be free to use
  2. It would be immune to hard forks
  3. It would specify time, rather than money, as the opportunity cost for token holders
  4. It would not be susceptible to 51% attacks
  5. It would be upgradeable at the smart contract level
  6. It would not require intensive power usage
  7. Developers would be able to use the languages they already use
  8. The initial token distribution would be 100% decentralized, equitable, and available to all
  9. No ‘pre-mined’ tokens would be allocated to the team, or to any other entity

Instead of raising hundreds of millions of dollars to build this blockchain, the developers simply sat down and did it, using their own capital and time. And two years later, the Koinos blockchain was deployed to mainnet.

For a six month period beginning in November 2020, anyone with a CPU could mine the KOIN token, which had an initial supply of 100 million tokens. The launch of the mining period was detailed in Cointelegraph, the largest cryptocurrency-focused publication in the world, as well as on Hacker Noon and the BitcoinTalk forum.

Decentralization of the network was not an afterthought, and it’s not merely a promise. It already happened, and it’s both irreversible and permanent. Any tokens owned by the developers behind the Koinos blockchain were mined or bought, like anyone else, without any head-start or early advantage. 

The following data from Etherscan predates the transition to the native KOIN token, but illustrates that the distribution of the ERC-20 prior to mainnet was far more decentralized than some projects:

Koinos Top 100 KOIN token holders
Worldcoin Top 100 holders

Koinos has now been running for almost a year uninterrupted, having launched on the auspicious date of November the 5th, and dozens of projects and developers have worked to deploy NFT collections, a decentralized exchange, wallets, and other infrastructure on the chain:

Current projects include:

Meanwhile, the Koinos community is growing rapidly, with over 10k followers on Twitter and highly-engaged Telegram and Discord groups.

For a deeper exploration of the blockchain itself, see the Koinos website and the Koinos unified white paper.

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