Crypto's Decentralization Dream Fades as Institutions Take Control

Cryptocurrency, initially conceived as a sanctuary from the failures of fiat currency, was built by cypherpunks with the aim of liberating money from the control of banks, surveillance, and state authorities. However, a decade later, the landscape has shifted dramatically. Crypto is no longer seen as a resistance movement but rather as a distinct financial product category. This transformation has brought both legitimacy and co-optation, altering the way Bitcoin and Ethereum are used, who controls them, and what they represent today.

One of the most significant changes has been the implementation of Know Your Customer (KYC) requirements. Most users now interact with crypto through centralized exchanges (CEXs) like Coinbase and Binance, which demand government-issued identification and create permanent links between users and their blockchain activities. This shift has made crypto less borderless and uncensorable, as centralized identity is now inseparable from most on-chain activity.

Bitcoin's transition into a Wall Street asset marks a clear ideological departure. The U.S. government now treats BTC as a strategic reserve asset, with ETFs and corporate holdings institutionalizing it. Bitcoin is no longer just "magic internet money"; it has become digital gold held in custody, traded via brokers, and offered through retirement portfolios. Mining, once a decentralized activity, has become industrial, with Foundry controlling nearly 29% of the global hashrate and over 50% belonging to just three pools. The decentralization promised by proof-of-work now sits behind warehouse walls.

Ethereum's switch to proof-of-stake did not decentralize the network; instead, it concentrated control. Lido controls over 25% of staked ETH, and centralized exchanges like Coinbase and Binance together manage more than 14%. In total, over half of Ethereum’s consensus mechanism rests with just five actors. This is not a distributed peer-to-peer system but infrastructure shaped by enterprise staking platforms.

Even privacy coins, once seen as crypto’s ideological holdouts, are being absorbed. Monero, for example, offers robust default anonymity and ASIC-resistant mining, but regulatory suppression has led to its delisting by Binance and planned bans by the EU. Paradoxically, Monero’s market cap rose while its usage and trading access declined, suggesting a shift where privacy tools are increasingly viewed as scarce, speculative assets rather than usable currencies.

Stablecoins like USDC represent the final stage of absorption. They are fully compliant, dollar-backed, and serve as crypto’s bridge to the traditional banking system. Daily trading volumes exceed $10 billion, and they reinforce the status quo rather than disrupting it. XRP, designed for banks and compliant with international financial messaging standards, is another example of a coin tailor-made for the institutions crypto was supposed to replace.

If the goal was a censorship-resistant, anonymous global financial system, then crypto’s current trajectory represents a clear compromise. Surveillance is back, institutions control the infrastructure, and privacy is marginalized. However, if the goal was to prove that monetary systems can function outside of governments, then crypto has succeeded. It works, it has scaled, and it’s everywhere. Crypto wasn’t defeated; it was co-opted and forked, and most of the self-proclaimed rebels welcomed the shift.