In the age of decentralization, transparency, and disruption, it is easy to think that the world of blockchain features the balanced distribution of power. However, there is a counterintuitive truth lurking behind Bitcoin, Ethereum, and other decentralised systems: a fresh set of elites orchestrating the so-called decentralised revolution from behind a curtain. Welcome to the realm of cryptocracy, a form of unaccountable governance that relies on influence via code, consensus mechanisms, and anonymous wealth instead of office, board of directors, or reputation.
What Is Cryptocracy?
The word cryptocracy combines crypto (for hidden or encrypted) and cracy (for rule or power), and describes overall rule, control, or governance exercised underground or in secret. In the context of blockchain, it refers to the fact that, even with claims of decentralization, the actual rule is held by a few people.
Examples of hidden power include:
Core developers: The community of developers that are writing the protocols and maintaining the protocols.
Miners and validators: The miners and validators that enforce the rules and secure the blockchain.
Crypto whales: Early adopters or investors in crypto that have the ability to move markets in the form of one trade.
Owners of exchange claiming decentralization: Owners of crypto exchanges that rely on the trading activity of their users to create revenue or serve ads that make money.
Founders of major blockchain projects: Typically known by a pseudonym, they serve as the lifeblood of a project with little accountability.
They effectively represent a new ruler, or a cryptocracy, all under the guise of decentralization.
The Illusion of Decentralization
Although blockchain technology permits peer-to-peer transactions and has the potential to eliminate middlemen, the systems that support blockchain are far from decentralized. For example:
A few mining pools and hardware companies dominate bitcoin mining.
Decisions made by core contributors and leading developers heavily dictate governance decentralization on Ethereum.
While DAOs (Decentralized Autonomous Organizations) are open in theory, in practice there are often minimal individuals who vote putting early adopters and larger stakeholders at an advantage.
Many protocols in decentralized finance (DeFi) and many of their upgrades, entities working on giving liquidity in exchanges (liquidity pools), and tokenomics decisions are largely made and controlled by a few insiders with development or financial clout.
Who Holds the Blockchain Throne?
Cryptocracy does not have a crown and as a result does not operate in the same manner as traditional power structures. Instead, it cloaks itself in:
a pseudonymous identity such as the unknown creator of Bitcoin, Satoshi Nakamoto, or often, several unknown founders of a DAO;
private keys and multi-signature wallets controlling immense amounts of digital wealth;
control of protocol updates, which can change the inherent rules of the cryptosystem;
These actors can affect transaction speeds, transaction requests, transaction fees, or if a project will even be listed / funded. Unlike elected officials, under a cryptocratic regime, they are rarely held accountable by a public.
Taking Responsibility
Cryptocracy draws important questions and implications for future digital governance and freedom:
Who is responsible for auditing the code that governs billions of dollars in assets?
How does a user exert their influence over these decisions, especially if they cannot operate on technical or financial levels?
Can systems purposely established as trustless become centralized over time?
As governments begin (or continue) to regulate crypto with more vigor, and as new technologies, such as artificial intelligence, are used alongside blockchain, the impact and influence of cryptocratic actors will only grow in importance. Hence, enforcing transparency and accountability is more important than ever.
The Path Forward: Transparency, Education, and Participation
The blockchain community needs to combat the rise of cryptocracy in the following ways in order to democratize power:
Foster open governance models with broader engagement from community stakeholders.
Educate users on how blockchain systems operate and where the true power lies.
Be acutely aware to leverage honestly decentralized infrastructure, from mining to node operators.
Insist on transparency of project funding, token allocations, and governance.
Blockchain has a tremendous opportunity to redefine power structures, but only if we are continuously aware of / and careful of who is really in charge.
Conclusion
The dream of decentralization isn’t gone, but it is certainly under siege from within. Within the blockchain throne room sits a new class of elite power brokers ready to usurp the ideals of democratized power, who are hyper-informed, usually anonymous, and often unaccountable. Recognizing cryptocracy is the first step in re-staking our claim to the original vision of blockchain systems: a world where access to all types of resources is fair and open and which empowers us all wholly.
Let’s make sure that in the next generation of finance and digital identity that power doesn’t just change hands, it becomes democratically distributed.
