What makes bitcoin decentralized?

I want to understand the defense mechanism of the Bitcoin price control.

A rich company can buy a large portion of Bitcoins from different people in different exchanges. Then they can hold on to those Bitcoins, essentially becoming a controller of the Bitcoin economy. A large number of companies can start doing that.

If that becomes the case, then will Bitcoin still be decentralized? Those companies with their fare share of the Bitcoins, can control the price or any other aspect of the economy.

soham

Posted 2017-12-03T19:02:19.180

Reputation: 113

Answers

Say they do.

First, in the process, they'd push the price of bitcoins way up. And this is while they're buying. So they'd be buying high -- not a very good strategy. Every bitcoin holder would be quite grateful to them.

Now, they start taking over control of bitcoin. Let's just assume somehow they could do this. Well, if they make bitcoin more valuable, good on them. If that makes it less useful for some things that are important to people, that's no problem, they can just create another system or use some other existing system like bitcoin cash or litecoin.

If they crash the value of bitcoin because people don't want a centralized system, well then they just bankrupted themselves. They bought all these bitcoins high and now they're worth much less. And everyone else can still move to another system.

So it just seems like a way to waste a lot of money, unless they can make bitcoin better and more useful. In that case, awesome. Either way, all the people who sold bitcoins to them as they bid the price way up will have plenty of money to build a new system that they have no influence over.

David Schwartz

Posted 2017-12-03T19:02:19.180

Reputation: 46 931

It seems that you are suggesting that holding a large amount of Bitcoins does not matter much for a company. The reason is: they would either have to sell those Bitcoins, essentially demoting Bitcoin's value or just to hold on to those Bitcoins, which would result into non-transactions and hence of no use.

I can buy your argument. Still, a lot of people could face risk. Also, if Bitcoin becomes a significant part of mainstream economy, risk of some company affecting the economy has some high probability. Is it Bitcoin's strength that it's outside the mainstream economy? – soham – 2017-12-04T18:31:54.683

@soham.m17 Someone can create disruption, but only at their own expense. That's already the case today. Jeff Bezos could, if he wanted to, divert much of America's productivity to moving dirt with teaspoons for quite some time. People who invested in other businesses might even lose lots of money. But for very sensible reasons, people don't worry too much about this. – David Schwartz – 2017-12-04T18:36:37.000

Yeah. I understand it now. Your explanation makes things more clear. Thank you. – soham – 2017-12-04T18:38:17.113

I think you're not understanding what decentralized exactly means.

Sure, a company with a large stake can control the price ( up to a certain degree), but this does not mean that they control (the protocol) Bitcoin itself.

There's no central power which decides what transaction is good, or which one is bad, or who controls what.

which would still be the case even if company X had 90% of the bitcoin supply.

Rutger Versteegden

Posted 2017-12-03T19:02:19.180

Reputation: 966

Okay. That's a different definition of decentralization. Still, there could be a situation where a company with large stake of bitcoins would be able to influence the policies of Bitcoins, and hence the transactions. – soham – 2017-12-03T21:03:19.763

Policies are usually only changed by consensus, which is determined by the signaling of full nodes, i don't think this necessarily has that much to do with how much bitcoin you own. – Rutger Versteegden – 2017-12-03T21:08:18.253

Isn't it contradictory what you are saying? Because if a company can start controlling large share of mining nodes and also hold large share of Bitcoins, they can become the controlling authority. I'm not arguing against Bitcoin's potential. I want to understand what restricts the companies controlling this currency. – soham – 2017-12-03T21:13:37.320

3Miners, even a majority of them, don't control Bitcoin. Their authority is restricted to determining the order of otherwise valid transactions, and deciding which of conflicting transactions get accepted. This power includes the ability to indefinitely reject some transaction, but under no circumstances can miners make an invalid transaction acceptable - network nodes would simply ignore their blocks if they did. – Pieter Wuille – 2017-12-03T21:51:29.317