Blockchain
Blackrock and other Wall Street giants are getting into a decentralized cryptocurrency industry. Will they crash the party?
BlackRock co-founder and CEO Larry Fink is increasingly embracing cryptocurrencies. In a recent interview, He stated that Bitcoin is legit and firmly believes that there is a place for the cryptocurrency in the average investor’s portfolio.
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While it may seem promising to many that cryptocurrency is gaining popularity, the cryptocurrency community is also concerned that financial giants like BlackRock, Fidelity, and others may undermine the idea of decentralizing finance.
Quartz looks at whether the fear that financial giants will take over the decentralized cryptocurrency sector is true or not.
What is decentralized finance (DeFi) and what is its purpose?
Decentralized finance, or DeFi, is an integral part of the cryptocurrency world that aims to create an open, borderless, and decentralized financial system that operates without reliance on traditional finance or centralized intermediaries such as banks or financial institutions. Ultimately, the goal is to limit the power of centralized institutions in determining who has access to financial services and help billions of people around the world do not have access to banking services.
Financial institutions have jumped into the crypto space
Now, financial institutions like Blackrock have entered the cryptocurrency industry. After receiving approval from the Securities and Exchange Commission for Bitcoin ETF Spots In the United States, BlackRock’s iShares Group launched the iShares Bitcoin Trust (IBIT) earlier this year. It is the largest spot Bitcoin exchange-traded fund, with over $18 billion in assets. The financial giant plans to launch an Ether ETF in the near future.
Noelle Achesoncryptocurrency expert and author of the “Cryptocurrency is macro now” newsletter, believes the blockchain ecosystem will continue to grow regardless of whether large institutions are involved. That’s because “BlackRock and Fidelity do not control the development of decentralized services; rather, they complement it,” he told Quartz in an email.
But DeFi also needs centralization
It is important to note that while cryptocurrency is decentralized, it still relies on some aspects of centralization, such as cryptocurrency exchanges, major mining players, and core developers who often have control over the software. This type of traditional financial system or centralization is seen as necessary for the development of cryptocurrency and blockchain ecosystems.
For example, BlackRock’s BUIDL fund, launched in March, tokenizes assets such as cash, short-term debt, and securities on the Ethereum blockchain network. This increases transparency and liquidity and illustrates how traditional finance and the blockchain ecosystem are merging.
Is Bitcoin Becoming Centralized?
Peko Wanthe co-CEO of the blockchain platform Points XShe is concerned about another aspect. According to her, decentralizing finance does not necessarily mean decentralizing ownership. This is because BlackRock’s iShares Bitcoin Trust (IBIT), the largest spot Bitcoin exchange-traded fund, holds over $18 billion in business. Similarly, Michael Saylor MicroStrategy holds 1% of the total Bitcoin in circulation.
“If a large amount of Bitcoin is held by some organization, it is not known what they will do with this huge reserve and whether they will immediately sell on the market,” he told Quartz in an interview.
She added that it is a common fear because 70% of the world’s assets are actually held by about 5% of the population. Because cryptocurrencies are built on a decentralized network, it is more like an open world, but according to her, who holds cryptocurrencies is becoming centralized. “If Bitcoin becomes too centralized [because of who is holding it]people might lose confidence in this,” he said.
What future for money?
The evolving financial model is now a mix of centralization and decentralization, rather than just one or the other. While DeFi has brought some revolutionary changes, it has also suffered several setbacks. To rebuild trust in the system, the hybrid model is gaining popularity. However, it is crucial to consider the original purpose of decentralized finance and whether it is truly addressing the needs of the unbanked population.