Cryptocurrency enthusiasts often describe its value proposition as being at least partly based on it being "decentralized". Cryptocurrencies are decentralized, it's true, but in a way that's more subtle than it might first seem. It's not the lack of a central bank or some other legal angle that makes cryptocurrency decentralized. It's also not in the activities that it's used for. It's decentralized because of its technical functioning. This is a bit challenging to understand from a cryptocurrency point of view, but recent developments in NFTs help make it more clear. More specifically, Damien Hirst's recent NFT collection called "The Currency" helps make the type of decentralization in cryptocurrency more clear.
Decentralization At The System Level
Cryptocurrencies are generally decentralized in the sense that no single party or group of people can make changes to the way that it works. This is different from most forms of government money, because the government can (and does) print money whenever they'd like. Cryptocurrencies like Bitcoin and Ethereum don't work like this because the rate of the growth of the units is controlled by code.
Programmers can always change code. But with cryptocurrencies, the code changes need to be adopted by many people to change the ruleset that defines the cryptocurrency. If developers propose a change that users don't like, the users can happily continue using the old set of rules and software.
Although there's often a key group of developers who are influential, they are influential because they have good ideas people agree with, rather than because they have power (backed by law, and in some cases, police powers) like a central bank. But at a deeper level, there are so many dissimilarities between cryptocurrencies and government-issued money that even this analogy is too strained to be useful. Software is very different from government money. The means by which changes are effected is so different that they only appear similar at a surface level.
Money Is Also Decentralized
Money issued by government is decentralized to a much stronger degree than people realize. Bills that are printed are eventually distributed and circulate anonymously in the system. Bank deposits are not visible to the government, and layers of intermediaries preclude network analysis of the type often used to trace cryptocurrencies.
Fiat currencies, like Canadian or US Dollars, are not simply printed, they're created and destroyed through complicated bank-mediated processes involving credit. The explanation is too complicated and multiparty to be summed up in a simple blog post, but that complexity is not found in cryptocurrency and is another point of difference. Look at various explanations of inflation today to see how the complexity of fiat money makes cause and effect difficult to determine. Cryptocurrency, being governed by code, is possible to clearly understand and define. But both share their decentralization on the use side, since use is independent of the creation of the units.
Other Forms Of Money
Cryptocurrency can certainly be used as a type of money, but so can gold, and any other reasonably fungible and divisible units of valuable materials that can't be easily copied. The ability to use something for payments isn't much of a differentiator between any of these potential means of payment.
Economies in advanced countries are highly decentralized, being made up of millions of people acting independently. Even state-planned economies like the Soviet Union or today's North Korea, have market components to them and can't truly direct everyone's actions. In countries like Canada, even with very sizeable government sectors and a multitude of laws, the vast majority of the economy is guided by prices and independent actions. Cryptocurrency doesn't add very much to this type of decentralization. Modern economies use multiple currencies with ease, and cryptocurrency only adds to this type of decentralization when compared to bank-mediated transactions that may be less decentralized due to laws that regulate banks. But this is a minor improvement in decentralization at the margins.
The Meaningful Sort Of Decentralization
What's meaningful about the decentralization inherent in cryptocurrency is being free from individual control, which also means being free from corporate control and government control (extensions of individual action involving groups). Having code as the guiding force for a means of payment means that people cannot counterfeit the units or create more without the agreement of everyone who is a part of the system. In the world of fiat currencies, many players can make units without consulting with the rest, but in cryptocurrencies they can only be made according to predetermined rules. There is an incredibly, almost unthinkably, strong level of computation that backs up the promise of major cryptocurrency networks, and this is decentralized in a way that fiat currencies can't be.
NFTs: An Alternative View On Cryptocurrencies
Non-fungible tokens (NFTs) can also look a lot like money. Damien Hirst's NFT project called "The Currency", is a great example of this. They are made in limited series like art prints, but can be transfered, purchased, or sold, on a 24/7 basis online. They are serialized, but are essentially fungible and sold for around the same price. It's not unreasonable to imagine someone agreeing to be paid in Damien Hirst's NFTs as a means of payment.
If NFTs like Damien Hirst's had occurred before Bitcoin, what would people have said about Bitcoin? Would it be more obvious how the law should treat it and how they differ from traditional currencies? Few people would say that his limited edition prints available digitally seem like Canadian Dollars. Although he called the NFT series "The Currency", and this is a bit similar to "cryptocurrency" as branding for blockchain network units, they seem less obviously like money because they have an art component to them. But it's surely the money side of them, and the digital nature of their exchange, that makes them noteworthy.
It's possible that if NFTs had preceded Bitcoin and Ethereum, there would be less confusion about their role as "currency". It would also be more clear what it means for cryptocurrencies to be decentralized. It's not in the use of cryptocurrency units as money (and not in their use for spontaneous market-based economic activities) but rather in the control of the system itself.
Art To Cryptocurrency
Damien Hirst's NFTs are not themselves decentralized, in that they rely on copyright and an artist who created each one. Units of Bitcoin and Ethereum are fungible and not made by specific entities. More importantly, the NFTs that he published are at a second level, above the level of the underlying Ethereum network. The first level is decentralized so the second level doesn't have to be, in that the NFTs are exchanged across the Ethereum network when they trade hands. This is a bit like the VISA network being used for both debit and credit cards, which are complex products built atop a base layer. The NFTs are decentralized at the transaction level, but not at the content level.
Cryptocurrency is a decentralized type of money, and the cryptocurrency networks can be used for many other applications at a higher level, not all of which are decentralized in the same way as the base layer. But what's important is that Damien Hirst doesn't need to wonder whether someone may change the rules of Ethereum and damage the usability of his NFTs, and he can trust that the network rules will be respected not out of the goodness of anyone's heart, but out of the assurances of computer code running as the code says it must run.