Decentralization as a Marketing Term

What if I told you that the cryptocurrency services you’ve come to consider decentralized aren’t actually decentralized? It may sound strange, but in many cases, decentralization turns out to be nothing more than an enticing buzzword. Let’s figure this out.

What Decentralization Means in the Context of Cryptocurrencies Today

One day, a customer reached out to Rabbit Swap’s support team because they wanted to exchange ETH for XRP.

• They wanted to know how to connect their wallet to our service.
• The support agent asked which wallet they were using.
• The customer replied that their wallet was Bybit Web3 Wallet.
• The agent explained that there was no need to connect a wallet to complete the exchange. When creating a swap request, our system provides the address of a partner offering the best exchange rate. The customer only needs to copy this address from our website and paste it into the Bybit Web3 Wallet to send the transaction.

The customer’s final question was: “If it’s impossible to connect a wallet, doesn’t that mean you’re a centralized exchange?” The agent honestly replied that yes, we are, and the customer left, choosing not to proceed with the exchange.

But wait! This client wanted to exchange ETH for XRP and use the Bybit wallet to initiate the transaction, apparently expecting it to be a decentralized process. Where in all of this can we find anything decentralized?

1. Ethereum

   The Ethereum blockchain is effectively controlled by the Ethereum Foundation. If the organization decides to implement a hard fork, it happens, and the network rules change. Some may reject the fork and continue to develop the original chain. This has happened at least twice: Ethereum Classic and EthereumPoW are the results of community members rejecting hard forks initiated by the Ethereum Foundation. However, such blockchains attract little attention. Users largely prefer the blockchain managed by the centralized entity — Ethereum Foundation.

2. Ripple

   Ripple uses RPCA, a protocol based on trust in a specific set of validators who vote on transaction validity and ledger creation. To participate, one must add their node to the list of trusted validators, which requires approval from the existing members. This makes Ripple even more centralized than Ethereum. While the Ethereum Foundation can push changes thanks to its authority, users retain the technical ability to reject decisions and continue mining blocks under the original rules. In Ripple’s case, the validator club has full control over ledger updates, leaving users with no technical ability to bypass this centralized control.

3. Bybit Wallet

   The Bybit wallet isn’t even non-custodial. Developed by the Bybit exchange, it doesn’t provide users with private keys to their wallet addresses. Developers can disable accounts and restrict transaction capabilities at any time. While assets stored in such wallets may be on a distributed ledger, access to them is entirely centralized — limited to the Bybit app and subject to the developers’ permissions.

Our potential client abandoned the best exchange rate offered on our website due to a lack of decentralization, even though the three crypto projects involved in their intended transaction all have decentralized qualities that are highly questionable.

Clearly, for this client, “decentralization” is not the absence of a single point of control, but rather the ability to connect a wallet. If you can connect a web3 wallet to an application, in the public eye it’s considered decentralized — no matter how centralized the system behind it might be.

What Decentralization Really Is

Decentralization became a buzzword in the crypto industry during the 2020–2021 DeFi boom.

DeFi refers to traditional financial services provided without traditional financial institutions. Financial services are services whose primary focus is money. In other words, money is not only a means of payment but also what you pay for the service with. The most straightforward example is a loan. You borrow money from a bank and pay the bank money in return. That’s a financial service.

Beyond loans, traditional financial services include bank deposits, accounts, money transfers, payment processing, trust management of financial assets, insurance, and more.

By 2020–2021, all financial operations were performed by software on computers, and each instance of that software was controlled by someone (such as a central bank, a credit institution, an exchange, or a money transfer operator). Enthusiasts launched equivalent programs on blockchains controlled by smart contracts instead of financial institutions. These became known as “decentralized finance” (DeFi), regardless of how services were delivered “under the hood.”

Some programs truly provide decentralized solutions. For example, the EtherDelta decentralized exchange smart contract. To submit an order to the order book on that exchange, you could use the original website etherdelta.com, or you could create your own web interface for sending orders. One such site — forkdelta.app — eventually became just as popular as the original.

In these kinds of projects, any site is simply a gateway for convenience. If one site shuts down, another pops up, then a third, and so forth. They can be replaced as many times as necessary, which is why shutting down several sites still won’t destroy the underlying smart contract on the blockchain. That blockchain is stored in a decentralized network, and the network will continue to function as long as there are at least two connected nodes. That’s why, on these sites, you typically don’t even need to register. Instead, you just connect your wallet.

Alice’s wallet can connect to one site to place an order, while Bob’s wallet connects to another to match Alice’s order, completing the trade.

The essence of decentralization here is that decentralized financial flows cannot be stopped because there’s no single “off switch” for the network.

How the Concept of Decentralization Was Distorted

By late 2020, DeFi became the most popular and fastest-growing crypto sector. Many financial services began mimicking DeFi to ride the hype, often adopting superficial features without true decentralization.

A prime example is the widespread use of smart contracts on the Binance Smart Chain platform, which is managed by a small group of 21 validators, each selected by Binance, the exchange that launched the blockchain. On the surface, it all looks just like genuine decentralization. But these smart contracts live on a blockchain that could be shut down at any time by asking — or forcing — those 21 validators to stop running it.

Sound far-fetched? Then look at the similar HECO Chain, launched by Huobi (a competitor to Binance). It was marketed as a decentralized public chain, yet users recently discovered it will be shut down on January 15, 2025. Do you really doubt the organizers can actually disable it, despite its supposed decentralization? I don’t.

Another method of aping decentralization is adding that “Connect Wallet” button on a financial service’s website. Take this snippet of conversation that appeared in the community of the PowerTrade exchange, which has a “CEX mode” and a “DEX mode”:

The phrase “wallet self-custody” used by the exchange representative is misleading. In reality, for customers who connect to this exchange in DEX mode, addresses are created in the blockchain that have three private keys. One is held by the client’s wallet, while two are stored on the exchange’s servers. Two out of those three keys are needed to move funds from that address. So, in this so-called “DEX,” there isn’t even true self-custody. The funds at traders’ addresses are completely under the exchange’s control. As for decentralization, it’s absolutely out of the question. Switch off the exchange’s server, and traders won’t just lose the ability to make trades — they won’t even be able to withdraw their assets.

Why Call Your Service Decentralized If It Isn’t?

The first cryptocurrency — Bitcoin — is genuinely decentralized. That means if you keep your savings in bitcoin, no one anywhere has any control over your funds, and you can dispose of your money at any time.

That sounds inspiring. And all financial services are willing to be like that. If some services can’t actually be decentralized, they at least want to appear that way. That is exactly why the word “decentralization” gets used in marketing by crypto exchanges, swap services, payment solutions, and other crypto-related businesses.

However, decentralization has drawbacks:

1. Trust is viewed as a weakness

   Bitcoin thrives in trustless environments, but this ethos can foster a distrustful culture. Is that a world you’d want to live in?

2. Limited consumer protection

   In decentralized systems, payments are irreversible. If a service fails to deliver, there’s no way to recover funds.

So the idea that, in crypto, successful marketing requires you to pretend you’re a decentralized service seems pretty dubious.

Centralization can also be quite convenient. And trusting a centralized intermediary for services isn’t all bad. In the case of crypto exchanges, such an intermediary (like Rabbit Swap) can become your ally, standing by you through any difficulties that arise when using swap services, and helping you resolve all those issues.