Is Decentralized Finance and Gaming Really Decentralized?

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The unspoken truth about DeFi

Decentralization has always been one of the cryptocurrency industry’s favorite buzzwords. Developers often use it to describe themselves as some sort of achievement.

Yet, as great as it sounds in theory, reality is very different.

Let’s dig deeper into how decentralized — or not — the cryptocurrency industry really is.

What does “decentralization” mean, exactly?

The major source of confusion and misinterpretation of the term is not knowing what “decentralization” is truly about. Contrary to what many people believe, it has nothing to do with intermediaries or middlemen.

As the word implies, decentralization describes a system or network with no defined center or authority.

For example, the fiat financial system is regulated by central banks. These institutions are in charge and have the power to define monetary policy and change the rules of the system. These are highly centralized organizations.

In Bitcoin, that doesn’t happen. The rules are immutable and each node is responsible for enforcing them. If one deviates from these rules, then others will push it out. Order and performance are maintained by the network as a whole, and not one single authority.

Decentralized networks are not to be confused with a distributed network, where work is split evenly between the nodes. In a decentralized system, work isn’t divided between the nodes, but rather each node is its own master node and individual entity.

Decentralized networks have several advantages. Firstly, they eliminate single points of failure, as every node is independent from the others. If one fails, the system can continue without any hiccups.

It’s important to note that decentralization works in vectors. In other words, although a system may be designed to be decentralized, this doesn’t only depend on its architecture.

Let us explain further.

Different vectors of centralization

Every system or network consists of layers stacked upon each other. Let’s briefly dive into some of them.

The infrastructure layer, which includes the installations, facilities, and overall technology the system needs to function, is the foundational one. In cryptocurrency’s case, this would be the computers running the nodes, servers, and the Internet.

Then, there’s the organization layer, which consists of the set of rules and hierarchies the system functions under. This would be equivalent to the protocol’s code and consensus mechanisms implemented.

Now, a network that may have decentralized infrastructure may not have a decentralized organization, and vice versa. In other words, to be truly decentralized, a network must ensure there are no dependencies or central authorities across all of its layers and vectors.

Take the DAI case as an example. Everyone can mint or redeem DAI through locking collateral into the Maker Protocol. The entire system is governed by the protocol’s code, and all changes to it must be approved by the vote of the community. Sounds decentralized, right?

Not so fast! Among the assets you can use to mint DAI, there is USDC and USDT. That’s right, these are very, very centralized stablecoins.

More importantly, it’s estimated that more than 60% of DAI is backed by these assets. In other words, should these stablecoins collapse, DAI would collapse almost immediately after.

So, it turns out that both Circle (USDC issuer) and Tether (USDT issuer) have the power to crash DAI. This constitutes a single point of failure for the “decentralized” stablecoin and a huge dependency on these centralized entities too.

The space is much more centralized than what most people think

The deeper you dive into how different web3 protocols work, the more you discover that virtually all of them involve a certain degree of centralization.

Around 70% of the staked Ether is controlled by only 5 entities, and nearly half of its nodes are hosted on Amazon Web Services. These are two major centralization vectors.

BNB Chain is only maintained by 21 nodes. On the other hand, Solana validators have halted the chain many times during high congestion events.

All these networks have centralization vectors across their layers, and that’s fine. It’s nearly impossible to set up a truly decentralized network where the entire world runs on centralized money.

Yet, it’s important to keep this in mind if you’re a cryptocurrency user: crypto is still an exploratory industry, and what we’re using and building on is not a final version, but a prototype.

Although things may be subject to centralization today, we’ll keep building towards a fairer, more decentralized, and censorship-resistant future. That is the idea with Cloud Castles, but it applies to the entire space.

Decentralization on Cloud Castles

Considering everything we mentioned in this article, Digital Insight Games has taken a set of measures to ensure decentralization on Cloud Castles and all further DIG games. Let’s dive briefly into them.

Firstly, we are implementing a community governance mechanism, where players will decide on the future of Cloud Castles and future DIG titles through democratized voting. Players should have a say on what features they want to see in their favorite games. In our games, they can.

Furthermore, to ensure no outside factors affect our players’ experience, another key decentralization feature we’re implementing is building on our own Avalanche subnet. This will facilitate governance participation and allow the decisions of the community to be enforced regardless of any outside factors or activity.

We believe in decentralization and want to empower our players, letting them decide on the universes they play in. With their contribution, feedback, and collaboration, we can create new gaming experiences together, in a new dynamic unseen in the gaming industry thus far. Only then we will be able to create truly immersive, realistic experiences.

We’re on the right track.

Summing up

Decentralization is a key piece of the new economy — one where users are in complete control of their property, can keep them safe and secure, and don’t depend on any third parties or intermediaries to manage them. This is true in the financial world, but also in many others, including gaming.

But decentralization is not an easy feat to achieve, and we must actively seek it in every new platform, application, or development we make.

This is exactly what we’re doing in Cloud Castles, where we have made features like community governance, asset self-custody, and peer-to-peer trading main priorities.

We have so much more to share in the coming months, so make sure to join our community to stay up to date on everything Cloud Castles: