Is Crypto Really Decentralized?
Over the last 10 years, the major selling point for crypto and blockchain has been its decentralized nature and resistance to censorship. However, is this new, exciting, and incredibly volatile space truly decentralized? The uncensorable nature of cryptocurrency is a commonly used talking point, but does its validity hold when you critically look at the infrastructure that has been built around the ecosystem?
Systems like Bitcoin and Ethereum gain their notable security from the tens of thousands of individual nodes and their network of peers. In order to manipulate the system, a majority of nodes (interconnected computers running the network) would need to launch a coordinated attack. At the network’s current size, such an attack would be logistically impossible to achieve. However, this decentralized layer is completely unreadable to most people, as it utilizes binary data and low-level code to transmit data throughout the network. Average users in the crypto space, instead, rely on a handful of websites to store and manage their data and assets. The vast majority of transactions are funneled through a handful of centralized services with easy-to-use interfaces that connect to the blockchain. These centralized services have facilitated the rapid growth in crypto, making it easy to use, and bringing the space from a developer hobby to a global movement revolutionizing financial systems. Centralized companies have facilitated the explosive growth in crypto, but have also led to widespread reliance on their services, and the average technical skill of a crypto user today is orders of magnitude lower than when the space was first created.
Should world governments decide to take coordinated action against crypto, the first steps would entail pulling permits, intensifying regulation, and shutting down massive corporations. Coinbase would become a prime target as it is publicly traded on U.S stock exchanges, and is required to follow an incredibly strict set of regulations. Tier 1 exchanges facilitate trillions in yearly volume and without their services, transacting on blockchains would be nearly impossible for the vast majority of users.
One of the most transformative aspects of decentralized systems is the ability for users to own their own data and have complete rights to their digital identity. However, this is only true in the case that the user owns their private keys. Private keys are understandably scary to traditional finance users since they make hacks and phishing much more dangerous and likely. Private keys cannot be recovered or reset under any circumstance. This has led to the majority of users utilizing a centralized system that manages keys, reducing the risk of fund loss and human error. Currently, Coinbase alone holds 10% of the entire crypto market. Should a governmental lockdown on crypto take place, those hundreds of billions of dollars in assets would likely be seized by governments, and Coinbase users would either lose all of their assets or have them exchanged back to fiat at below-market rates.
If legal actions were unsuccessful at crippling this space, widespread infrastructure cancellation would come next, with cloud hosting cancellations and software as a service denial. These actions can and have crippled successful companies, one of the most notable being the social media platform, Parler. In the manner of a month, Parler went from over 15 million daily active users to less than 1 million. The actions of several large companies taking a stand against their platform completely obliterated their future. Between cancellations of web hosting, removal from app stores, and cancellations of Software as a Service solutions like databases and two-factor authentication, the company was brutally hit and went from a rapidly growing platform to a fringe app that appears to be on its way out. This same pressure would be felt by the crypto industry, at the least, making operations more difficult, and at the worst, closing the companies for good.
Finally, the rise of massive and centralized blockchain development companies is a major threat. The most notable example is Consensys, which has developed several of the most critical Ethereum services like MetaMask, the largest wallet provider; Infura, a node provider; Truffle, the most used smart contract development platform in the industry, as well as CodeFi, Quorum, and others. The cancellation of Infura would make dozens of decentralized apps unusable for days. Restriction of MetaMask would cause many to lose access to their funds, and the removal of Truffle would make it significantly harder for developers to write quality contracts. Consensys currently has more than 600 employees and was recently valued at 7 billion dollars. Blockchain has been capitalized by billion-dollar companies, and while less powerful than traditional monopolies, these companies still have an uncomfortable amount of power over the system.
This inherent centralization of applications proves a major risk to the longevity and security of blockchains and cryptocurrencies. While a shutdown of these services couldn’t destroy funds or mint new currencies, it would make crypto unusable to everyone except the most skilled users. Interacting with the blockchain from a python or javascript console requires an almost silly learning curve, requiring the below skills to do something as simple as transferring tokens between wallets:
- Configure & Run your own Ethereum Node
- Install & Understand the Web3 library to send & receive data
- Input the correct data into transaction.
- Understand ERC-20 Token Specification
- Use correct wallet addresses, private keys, and contract addresses
Smart Contracts are an entirely different beast in themselves and require significantly more steps to use. Smart contracts require an ABI, or application binary interface, to be accessed. Once a developer has the ABI, they then need to understand the contract functions, and how to use them. This again creates another divide, where it takes several hours minimum before a protocol can be understood well enough to be used. Should interfaces like the Uniswap website go offline, swapping would be an activity only available to experts on the Uniswap protocol. Gaining the required skill level to safely perform these actions would take several days, if not weeks for most developers.
While this article examines the worst possible case for crypto, this situation is admittedly unlikely. There are many important safeguards already in place to protect against the scenarios stated above. Not-for-profits like the Ethereum Foundation would be almost impossible to shut down, both because of the on-chain nature of their funding and also their very high level of technological literacy. A group of skilled developers with experience in networking can get past any firewall and use heavily encrypted communication. Should radical actions be taken against crypto, these developers and leaders would be among the first to respond, innovating new solutions to government censorship.
In the case of internet service censorship & infrastructure attacks, there are an increasing number of services that are applying decentralized principles to critical infrastructures like domain name resolution, and high-uptime web hosting. There are now blockchains designed to solve some of the biggest points of failure in our current internet infrastructure and this technology will only be improved over time. Underestimating the ingenuity of humans is also a mistake, and even in the worst circumstances, there would be brilliant people finding solutions to seemingly unsolvable problems.
We certainly have a difficult issue at hand and while there are solutions being developed, the best way to secure your financial future is to learn the skills to interact with your life savings and understand the systems that hold your assets. The increasing reliance on centralized systems highlights the need for programming literacy on the blockchain. While the average user might not require these skills, anyone with more than 30% of their net worth in crypto should be able to download and run a python script to access their funds. Expecting people to become software experts is impractical, but even an avid crypto user would only need to interact with an exchange like Uniswap, transfer ERC-20 and ERC-721 (NFT) tokens, and withdraw their funds from a staking protocol. These skills increase both the robustness of the system and protect users and their digital assets.
A course covering the basics of interacting with crypto would be a valuable addition to the space, alongside sample files that contain the code required to perform these transactions, and clearly show the steps required. Additionally, these templates could contain code that checks for errors, to decrease the chance of users making silly mistakes. While there are awesome resources on the Ethereum website, there is still no comprehensive and beginner-focused course containing the basics and easy-to-understand templates.
Creating these courses has been on our idea whiteboard for some time now, and while it is not currently on our master schedule, we would certainly make it a priority if people reached out and made it clear that this is a real need and something that would add a lot of value to their own life. If this is something you think needs to be implemented, or would like to contribute, we would love to hear from you. Send us an email at contact@cicerolabs.xyz
