At the writing of this article, I was inspired by the recent visit of the conference "Technology of the Blockchain" and the discussion of ideas for improving the blockchain with colleagues. Most of the speakers at the conference were from major Russian banks, and their speeches dealt with the application of the blockchain basically as databases or platforms of smart contracts. However, most of them were able to answer the question: "Why do they even need the blockchain?". Recently the answer was given by a consortium of R3 CEV: "we Have no blockchain, because we don't need him". The blockchain does not need banks that need it instead of banks. It is needed only for decentralized systems, at that time, as applications with the trusted party will always be more efficient, easier, etc.
The value of decentralization have been widely discussed (see, for example, the post Vitalik Buterin), and that decentralization is the only real reason to use the blockchain. In this article I'm going to discuss the extent and causes of the centralization of existing cryptocurrencies.
Centralized management and development
Nice to think that no one controls the blockchain, i.e., the network participants (miners) act as a decentralized community, which maintains the blockchain and the direction of its further development. In fact, it's much worse.
The first source of centralization here is a modification of the Protocol. Only a small group of developers can make code changes or even just to understand some of the suggestions of the Protocol. Nobody will work for free, and the organization that pays the money is the main team, actually controls the source code of the cryptocurrency. For example, the development of Bitcoin is controlled by the organization of Blockstream, which has its own interests. This problem can be solved by using the Treasury system, similar to that used in the Dash or proposed for Ethereum Classic. However, many questions remain unresolved (e.g., 78 pages offers a Treasury of ETS is difficult to understand, and Treasury system Dash was developed in General without any documentation).
Another risk of centralization in administration is a cult of personality. Although acne Buterin and tells us in his blog that cryptocurrencies controlled by no one, his opinion is so important to the community Ethereum that the majority of its members agreed to return stolen funds to The DAO, even though it violates one of the basic principles of the blockchain immutability.
Finally, at any cryptocurrency there are many stakeholders, with the view of some of them (e.g., casual users) is often ignored. Anyway, the development of cryptocurrencies is a social consensus in which it would be good to have a manifest declaring it from the beginning.
The centralization of services
One of the biggest challenges of cryptocurrencies at the moment is the centralization of services. Processing of the blockchain requires a lot of computational resources and time (for example, processing the whole blockchain Ethereum is on a normal computer for a few weeks), and ordinary users who want just to transfer a few coins, I prefer to use centralized services. Most Bitcoin users trust blockchain.info users Ethereum trust myetherwallet, etc. If these popular wallets are compromised, funds huge numbers of users will be stolen.
Moreover, most users trust the reviewers of units without checking the correctness of the blocks in it. What is the meaning of "decentralized" social networking Steemit if almost none of its users doesn't download the blockchain, and believes that the data presented on Steemit, correct? Or imagine blockchain.info was hacked: a hacker can steal the user's money from their wallets and replace transactions thefts in the browser blocks to other transactions, leaving the attack undetected for a long time. Thus, the credibility of the centralized services leads to the emergence of cryptocurrencies single point of failure, allows censorship and compromises your custom coins.
The centralization of mining
In the case of cryptocurrencies the hardware requirements are high even for simple check of the block chain. However, even if you have equipment capable of quickly processing blocks, your bandwidth may be insufficient for fast synchronization with the network. This leads to a situation where effectively create new blocks, only a small number of high performance computers, which leads to centralization of mining. Cryptocurrency was conceived as open systems that continue to work correctly as long as the majority of users are honest, however, at this time most of the computing power is concentrated in a small number of miners that can easily coordinate an attack with 51%. Mining pools worsen the situation — for example, in the case of Bitcoin, a total of five pools control more than 50% Hasrat.
Algorithm Proof-of-Stake is usually regarded as less demanding of the hardware, however, processing is really a popular blockchain will still need a wide network channel to synchronize with the network. In addition, the profit for holders of full nodes in a PoS are usually small, and only a small percentage of the coins involved in mining, making the network vulnerable. Often this is avoided through delegation of authority to mining someone else, but it also leads to a decrease in the number of full nodes in the network and, as a result of its centralization.
Centralization as a solution
The most frightening point is that centralization is increasingly seen as a solution to problems in cryptocurrency. A large network of slow syncing, and many cryptocurrencies propose to use a limited number of trusted "master nodes", "witnesses", "delegates", "federations" etc. to "solve" too many nodes in the network. The number of these trusted nodes may be different, but using this method to solve problems of scalability, the developers are also destroying the decentralized nature of the blockchain. As a result, this will lead to the formation of a cryptocurrency with one functioning node that processes transactions very efficiently, without delays, confirmations and forks, but in this case, the blockchain becomes unnecessary, as in the case of R3.
Unfortunately, most users do not understand the technical details of cryptocurrencies and they are more like blackany centralized because centralized services are and always will be more simple in design and user friendly.
Existing and emerging blockchain-system move in the direction of further centralization, which will inevitably lead to massive disappointment in the technology of the blockchain, because it is not required for centralized solutions. The user can choose whether to believe a beautiful and fast web interface or use a secure and decentralized software that requires downloading and processing the blockchain.
Most of the risks of centralization can be fixed if there is a convenient and decentralized full nodes, wallets and reviewers of blocks, but that's a topic for another article.
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