Centralization, the greatest danger of the Crypto world

Centralization, the greatest danger of the Crypto world

By PKcrypto | Point of Crypto | 19 May 2020

Jared Tate, the Founder of DigiByte (DGB), announced that he will be stepping aside from his daily operations due to the “Greed…and rampant pillaging” of the cryptocurrency industry. But he also added: “The centralization of this industry will be its undoing if we let it”....."the original values of this industry are gone”. 

Oh yes Jared, you're really right! The key feature that empowers crypto world, and makes these incredibly interesting is decentralization. Without it, such services are technologically easy to construct but require trust in a centralized administrator. Decentralization is a property regarding the fragmentation of control over the protocol. In the Bitcoin and Ethereum protocols, users submit transactions for miners to sequence into blocks. Better decentralization of miners means higher resistance against censorship of individual transactions. For communication, Bitcoin and Ethereum also have a peer-to-peer network for disseminating block and transaction information. Both Bitcoin and Ethereum also contain full nodes, which serve two critical roles: to relay blocks and transactions to miners and to answer queries for end users about the state of the blockchain. 


Mining is the fundamental concept in Bitcoin which must be done in checking all monetary transactions and verifying them which in return generates Bitcoin as a reward to encourage this work. While the qualitative nature of this unique system is clearly accepted and understood, there are some issues regarding to its decentralized network environment. The number of users joining top most famous Bitcoin mining pools are increasing due to the fact that users together under a Bitcoin pool will have a higher chance of generating next block in the Bitcoin's blockchain by reducing the variance and earning the mining reward. Furthermore, emerging huge mining farms with strong mining resources and fast processing power is another trend toward centralization.
Centralization in mining can also open the door to other issues. Back in 2016, Bitmain was shown to have built secret capabilities into some of their ASIC miners which gave them the ability to control other bitcoin miners around the world, thereby crashing the hashrate.
According to the current hashrate distribution on the network, no one mining pool controls a majority of the hashing power. However, the number of mining pools is limited and they could potentially take control over the network should they ever decide to collude.


This is a problem. When one of the miners in a mining pool wins a block and rakes in the reward, the mining pool decides which transactions go into that block. Bitcoin experts worry that these centralized entities could use this power to censor transactions they don't like.

And what about other project, Tron for instance?

The DPOS mechanism of TRON is pseudo-decentralized. The top 27 SR nodes (block nodes) have more than 170 million TRX votes, and most of them are controlled by TRON. It’s hard for other latecomers to become the block nodes so they cannot participate in the process of block production, only a handful of nodes control more than 90 percent of the votes on TRON with a few voters. The total number of TRX in TRON is 100 billion, while the total number of votes for the super representatives is just less than 8 billion. The spirit of the blockchain is decentralized, while TRON project is centralized, token distribution is centralized, Super Representatives are centralized, code development is centralized. Even the community is organized under centralization. No diverse voices in TRON ecosystem. The whole project has developed into a monetary tool without any ‘decentralize the web’ spirit.

And what about Government-owned digital currencies that would likely run on a private blockchain, reducing transparency due to their centralized governance model. Private blockchains attempt to take the advantages of blockchain technology without giving up all of the control. This centralized approach increases the risk of a single point of failure as all of the data is stored in a single system.

In conclusion, Bitcoin was designed as a decentralized alternative to government money and therefore doesn't have any single point of failure, making it more resilient, efficient and democratic. Its underlying technology, the Blockchain, is what allows for this decentralization, as it offers every single user an opportunity to become one of the network's many payment processors. Since Bitcoin's appearance, many other cryptocurrencies, or altcoins, have appeared, and most of the times they also use the Blockchain in order to achieve some degree of decentralization, but today, as Jared Tate says, the crypto industry, is moving towards centralization, and this is a big, big problem!




Software engineer // Fintech // Blockchain enthusiast // Crypto Investor

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