Cryptocurrencies will be less decentralized than expected. And this already backfires.
One of the big advantages of cryptocurrency over traditional financial systems, according to many of its proponents, is that neither the corporation, nor the central bank, nor the government has control over it. However, this is not necessarily true. Researchers working on a study commissioned by the Defense Advanced Research Projects Agency (DARPA) have found that there may be “surprise hubs”in these decentralized systems.
Cryptocurrencies will be less decentralized than expected
“The blockchain is supposed to be immutable and decentralized because the community says so,” says Dan Guido, CEO of Trail of Bits, the software security firm that conducted the study. The power of cryptocurrencies is concentrated among people and organizations who have a big piece of the pie. Like any capitalist system, some might say.
Trail of Bits defines these “unforeseen hubs”as circumstances in which an organization was able to influence a self-proclaimed decentralized system, giving them the ability to tamper with ownership records. The report also states that only three ISPs handle 60% of all Bitcoin traffic. The blockchain network can be completely broken if a communications regulator, a hacker, or someone else who can control one of these ISPs slows down or stops bitcoin traffic.
There are also flaws in the bitcoin network itself. The study found that 21% of nodes are running old and vulnerable versions of the bitcoin client. These systems could be targeted by an attacker seeking to take over the blockchain network, although this is unlikely given the size of the bitcoin network.
Some of these situations are purely theoretical, but the study reveals some of the weaknesses of blockchain technologies. And there have already been cases of centralization that have affected the ecosystem.
And it already has tricky consequences.
For example, last week blockchain-based lending platform Solend attempted to take over its largest account as it argued that the operator could have too much influence on market movements. Soland planned to temporarily take control of this “whale”account in order to liquidate his positions “with dignity”and avoid any possible disruptions.
A proposal to allow the platform to perform this operation — after all, Solend defines itself as a “decentralized protocol” — was accepted this Sunday. However, Solend users voted for another proposal to cancel the former, with 99.8% voting for the latter. The owner of the account in question had over one million of the 1.48 million votes. Solend is trying to liquidate its positions in a different way, but now it seems that all the power of this platform is concentrated in favor of the owner of this account.