Why Does 100% Decentralization Matter? See the Secretly Premined Coins in “Bitcoin Private”

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For some people, even talking about decentralization after the year-long bear market may seem inappropriate. It would be a fair question to ask “what’s your decentralization worth if nobody cares about it?” But the reality is that this trait still matters in the long run, and in this article we’re going to find out why. Many events have recently taken place that demonstrated just how manipulative the people who have control over a given asset can be. Bitcoin Private being a prime example of this.

Bitcoin Private — Too much privacy

For those who are unfamiliar with this cryptocurrency, Bitcoin Private is an attempt to create a hybrid between Bitcoin and Zclassic, which itself is a fork of Zcash. The initial supply of coins should have been equal to the combined supply of these two parent coins plus a small miner reward, and the total supply was capped at 21 million.

Out of the blue, the crypto analytics website Coin Metrics published a report where it pointed out that during the initial coin generation an amount of 2.04 million additional coins were secretly created. The development team had no choice but to confirm this fact. So, the initial supply, together with the official amount of ~20.4m BTCP became equal to 22.6 million BTCP.

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So what does this all mean? It means that somebody from the team created these coins and if nobody would have ever cared to check, it would have passed without being noticed by anyone. Here is where we come to the main problem of all centralized systems whenever money is involved (which is to say, when is it not?): in any condition when a party has control over the money and can receive a benefit from it, sooner or later someone will exploit that condition.

Bitcoin is more decentralized than Bitcoin Private, because its founder, Satoshi, owns only a small fraction of the supply and everyone knows his addresses. Currently, he has no influence on the network and no backdoors, so there’s no threat to the decentralization of Bitcoin. But the premine of Bitcoin Private is a whole other thing: it was done stealthily, and those who were invested in it lost money when the scheme was uncovered.

Okay, but that’s only one case of a shady money scheme, right? Well, this is where we talk about another, more stable asset with a long history that is considered a very safe reserve of many countries: Gold.

We don’t know how much gold is available

Gold is the oldest precious metal valued by mankind. Any time traveler in possession of a few gold coins could maintain a more than stable life in ancient Greece, ancient Egypt, medieval Europe, or the US in its Wild West days. When all else fails, gold remains. No wonder all governments want to increase the amount of their gold.

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However, no one truly knows how much gold is held by any one country. There is simply no way to track it; all of the information that the International Monetary Fund (IMF) has about gold reserves are given by the countries themselves, on a voluntary basis. For example, China reports its reserves to the IMF only once per several years, and each time the amount changes; from 600 tons to 1,054 tons, from 1,054 tons to 1,600 tons. The current amount is unverifiable and unknown and even the previous reports themselves could be false, China can hold more or less gold. The same goes for every other country. There’s no independent, decentralized way to check the reserves.

Gold reserves are an important metric that influences the investment rating of a country. If it can be made up to raise the rating it will attract more investors to the country, which could then be seen as more stable if it has a high enough rating. But that’s not the only dirty trick from centralized entities. Venezuela has a low rating, its gold is held in the Bank of England and it can’t get it back, so the Maduro Administration came up with an alternative idea on how to raise money quickly. A government-issued cryptocurrency.

Petro — The air-backed cryptocurrency

The whole premise of the issuance of Petro (Venezuela’s government-issued cryptocurrency) was that it will be backed by Venezuelan oil. It was the necessary step to ease the grip of hyperinflation by proposing something backed by a real commodity. Or that was the idea on paper.

In reality, nothing has changed after the introduction of Petro. President Maduro was printing money, bolivars, without control, which led to hyperinflation as the paper itself can’t be valued highly, it must have something behind it — work, production, national reserves. Oil is something physical, but currently there’s no way to check whether the supply of Petro tokens is equal to the oil reserves backing them. There’s not even a blockchain explorer! President Maduro can continue to print tokens and pay salaries and social expenses without ever spending a dollar as long as he’s the only one who knows the real state of things. That’s because the government can extract some profit from this situation. They can exchange worthless tokens for real money or use it to pay expenses to institutions within Venezuela.

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The Venezuelan government even went so far as trying to propose other governments to trade between countries, using Petro as a means of payment. For example, they wanted to pay Russia in Petros for truck parts, but the proposition was rejected — it seems that nobody is willing to accept these tokens. Why? Because everyone knows these tokens are worthless. Again, this is the currency used for paying social expenses, including pensions. This is simply a blatant display of absolute uncontrollable corruption.

Decentralization as a solution?

As we have seen, the temptation, that comes with control over financial assets usually wins out and leads to corruption. No centralized entity should be allowed to privately create and manage money, or any significant resources for that matter, because that inevitably leads to corruption. Scammers and corruption can be found everywhere, at all levels, from government buildings to bank halls. They control everything by restricting public access to information about their actions or they can erase and rewrite it, like what recently happened in Russia with their public property records where the names of the owners of many expensive properties were simply replaced by random strings of symbols. This couldn’t have been done if all records were kept on the blockchain.

The only fair way to control resources is to do it through decentralized control. In this case, nobody would be able to exploit those possibilities.

Currently, there are many projects and blockchain networks out there that aim to give their users the ability to become participants with the same rights and responsibilities.

This principle acts as the core foundation for InnovaMinex. This blockchain is built for tracking the origins of precious metals, such as gold or silver, and is fully decentralized, not having any controlling party. The team that developed InnovaMinex can only propose changes after the mainnet launch and they can only implement them if the community agrees on the changes. Anyone related to the precious metals industry can join the network freely. Please check InnovaMinex white paper document here.

A second interesting trait of InnovaMinex is the benefits that it gives to the owners of the project native INX tokens. INX token holders can use them to buy gold and other precious metals with up to 30% discount on the market price. Also, as this is a utility token, holding INX in the wallet for more than 3 months gives the right to participate in the distribution of 25% of the quarterly profit of the society, in the form of discount vouchers, which can offer up to 90% discount. This might be an interesting project for those who care about the real use cases of tokens they buy.

Conclusion

It’s quite hard to imagine how the housing crisis of 2008 would have been possible if all the information about homeowners with mortgages would have been publicly accessible. The same can be said about Venezuela’s Petro and bolivar or even Zimbabwe’s dollars.

With the blockchain, society will make it impossible to hide the amount of gold reserves or to sell fake vaccines, because there will always be someone willing to check the facts and examine the hard numbers. What is written into a blockchain can never be erased or rewritten. And all bad actors holding power won’t be allowed to act the way they do now. They will be acting as society demands or be forced to leave their positions. It becomes clearer with each passing day that decentralization can lead us to a better life. Our job is to make it happen.


Why 100% Decentralization Matters? A response to “Bitcoin Private” secretly premined coins was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.




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