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Blockchain and decentralization have become synonymous in the cryptocurrency sector. The use of blockchain technology has allowed us to create a network in which all users are the same and the information is distributed over an infinite number of computers in the world. Decentralization has acquired particular value for banks and other commercial institutions, as it introduces a new dimension in the concepts of security and transparency.
A study conducted in February 2018 by Professor Emin Gün Sirer showed that Ethereum is much more distributed than Bitcoin with the best distributed nodes in the world. This means that the Ethereum network is more decentralized than the older brother.
Well, "more" does not necessarily mean "absolutely". Is Ethereum 100% decentralized, anyway? This question was frequent lifted up from the community and the developers in the last two years.
There are many reasons to support the argument, and many of them are against it. One such reason could be the manipulation of commissions within the network caused by the massive launch of the online game CryptoKitties, which has transformed the decentralization features into a myth. Cointelegraph offers you either to confirm or refute this and other six myths about the decentralization of Ethereum.
Myth 1: decentralization means distribution
To better understand what decentralization means in the Ethereum blockchain environment, we refer to the concept described by the founder of the Vitalik Buterin network. In his post medium, he expressed many important reflections on the need for decentralization and on ways to achieve it:
"Decentralization" is one of the words that is most frequently used in cryptoeconomic space, and is often seen as the whole reason for being a blockchain "
Vitalik says that decentralization is one of the fundamental concepts in blockchain, which is essential to protect networks from problems such as errors, attacks and collusion. Although "thousands of hours of research" and development are aimed at achieving and improving decentralization, the exact meaning of the term is not yet clear.
Vitalik cites the example of the "completely useless but unfortunately too common decentralization diagram" that has spread among users and even developers. Considering that the last two images should obviously be reversed because "decentralization means that none of the nodes has the ability to control the processing of all transactions on the network".
Image source: Vitalik Buterin Medium Post
Myth 2: Blockchain is resistant to errors
What should we do, if even the developers themselves are confused about the definition of decentralization? To clarify the ambiguity, Buterin has created its own classification, which can be used to determine if a network is centralized or not.
Image source: Vitalik Buterin Medium Post
- Architectural decentralization it is based on the amount of physical computers in a system. The more those computers that can tolerate blasting at any time, the stronger is their decentralization.
- Political decentralization refers to the proportion of individuals or organizations that ultimately control the computers that make up the system.
- Logical decentralization it is identified based on the form of the interface and the data structures that may look more like a single monolithic object, or an amorphous swarm. A simple heuristic is: if you cut the system in half, including both providers and users, will both halves continue to function fully as independent units?
Often, architectural centralization leads to a political state, although in the computerized communities this can be avoided. The same can not be said for logical centralization, which in turn makes it difficult to form an architectural and political decentralization.
Myth 3: the Ethereum network is protected from attacks
What makes the network decentralized? These are three essential components that form the foundation of this unique feature. If at least one of these works incorrectly, the system can be transformed into a centralized entity:
Fault tolerance – decentralized systems are less likely to accidentally fail because they rely on many separate components that are not likely to fail.
Resistance to attacks – decentralized systems are more expensive to attack and destroy or manipulate because they lack sensitive central points that can be attacked at much lower costs than the economic dimensions of the surrounding system.
Resistance to collusion– it is much more difficult for participants in decentralized systems to collude to act in ways that benefit them to the detriment of other participants, while corporate and government leaders collude in ways that benefit from themselves but harm less well-off citizens, customers and employees coordinated and the general public all the time.
It may seem that everything is simple, but at the protocol level the situation seems slightly different. For example, fault tolerance is useless if for some reason a large number of computer components fails to process blocks simultaneously.
Vitalik Buterin cites an example of real life:
"Of course, four jet engines are less likely to fail than a jet engine, but what would happen if all four engines were manufactured in the same plant, and in all four engines were identified by one rogue employee?"
Myth 4: the Ethereum network is resistant to attack
The resistance to attacks works much better in systems based on the Proof of Stake (PoS) algorithm, rather than on Proof of Work (PoW), on which the entire Ethereum blockchain acts. This is one of the reasons why the Ethereum foundation goes to PoS this year.
The fact that Ethereum is vulnerable to attacks became known in September 2016, when a series of Distributed Denial of Service (DDoS) attacks led to a significant delay in the operation of the nodes.
That time, despite the release of a series of Geth updates including "What should we rewrite?", "Come to me Bro (1.4.15)" and "Poolaid (v1.4.17)", the developers of Ethereum could not manage the DDoS Attacks. The situation should have been remedied by the release of the many Ethereum enhancement proposals (EIP):
Some of the highlighted EIPs describing the protocol changes implemented in this hard fork include EIP 155: Replay attack protection that prevents transactions from an Ethereum chain from being retransmitted on an alternative chain; EIP 160: EXP which regulates the price of the opcode & # 39; EXP & # 39; so that it is in balance with the computational complexity of the operation; EIP 161: which allows you to remove a large number of empty accounts that have been placed in the state at a very low cost due to previous DoS attacks; and EIP 170 for the contractual code size limit.
However, at the beginning of October 2017, the new Ropsten network has undergone new attacks. Ironically, at that time it was used to test the new Ethereum Byzantium update code which was supposed to prevent DDoS attacks by increasing opcode gas costs.
Myth 5: collusion of swimming pools is impossible
Nobody seems to have anything to do with Ether's solitary extraction today: users join in pools of mines big and small. This special threat to decentralization is posed by the larger ones, since they manage the capacities of all the miners connected to them.
For example, pool operators can only include transactions that are interested in processing in the generated blocks. Therefore, one of the goals of modern mining that many pools have today is to provide distributed generation of blocks.
In the current environment, 60-70 percent of the total network hashrate belongs to only four or five of the most popular pools. This applies to almost all cryptocurrencies in which its complexity has already exceeded certain limits, making mining alone impossible. As a result, pool owners influence the policy of the network as a whole.
Image source: Etherscan
Until recently, the risk of complete centralization of mining activities seemed very ambitious. But in 2017, the dott. Loi Luu expressed the opinion that the situation is more dangerous than it appears, and that decentralization measures should be taken as soon as possible.
Myth 6: Portfolios have private access to their funds
One of the characteristics of cryptocurrencies is that nobody can make transactions with funds that do not belong to them. In most tokenised systems, this happens through the following scheme: each of the transactors must have the ability to allow the execution of the operation so that it can meet the requirements of the previous operator. This means having the right private key and avoiding double transactions or theft.
Ethereum has a complete version of smart contracts. An intelligent contract is a program executed once the transaction has started. Furthermore, it is the main "building material" for the creation of any decentralized application (dApps).
Smart contract technology has many advantages in terms of security and convenience, with the exception of a crucial disadvantage. Holders of digital wallets can not be considered as the sole owners of their funds: the custodians are the contracts themselves, which contradicts the original principles of cryptocurrency.
In theory, an ongoing contract can perform any action without the user's permission. Although it is always possible to verify the correctness of the actions through the open source code, not everyone can do it. This problem could be solved through the creation and use of a single auditing contract, but no one has implemented it for the time being.
On May 18, the NEO platform reported which collided with the vulnerability of smart contracts:
A statement about the injection-in-storage vulnerability. https://t.co/CksTyaxn3I
– NEO Smart Economy (@NEO_Blockchain) May 18, 2018
As it turned out, hackers could perform any action with tokens – for example by increasing or decreasing the amount displayed and burning coins – using only one parameter of the smart contract. In fact, the developers managed to calm the community by stating that the true state of the blockchain was not affected.
A similar situation occurred in the OKEx exchange, which on April 25 suspended all ERC20 token deposits after the discovery of a new intelligent contract bug related to the batchOverflow parameter vulnerability:
By exploiting the bug, attackers can generate a large amount of tokens and deposit them in a normal address. This makes many of the ERC20 tokens vulnerable to attacker price manipulations.
Myth 7: Manipulating network settings is impossible
At the end of 2017, the online game CryptoKitties took more than 13% of all Ethereum traffic, after receiving the title of "Ethereum & # 39; s Killer App". This popularity has been brought to DApp by the simple and at the same time extraordinary functionality to allow users to breed different virtual cats and get offspring. The more the progeny is unique, the greater the reward given to its owner. The characteristics are innumerable, so every pet is different from the others.
Image source: TheAtlas
But what's wrong with CryptoKitties and other applications like this? First of all, the huge demand for cats has increased the queue of transactions waiting to be included in the block. At the same time, pet owners looking for high priority have paid a lot of higher commissions. This has increased the network commission for the rest of the network users, creating huge "bottlenecks" of unprocessed transactions.
Secondly, prices have occurred uncontrollably. If immediately after leaving the app, a cat cost about $ 2 in ETH, only in a month the price has reached $ 10, and in 2 months – $ 25, with a maximum of $ 113,000 paid for a kitten. Is not it a good manipulation?
The potential threat of such applications can not be underestimated. The developers completely control both the game and the smart contracts. Cats are gradually increasing in price and each contract can be suspended at any time. According to the developers, this is a security measure in case of hacking of one of the three management accounts owned by the team. However, the principal account key holder is able to block the entire game and, consequently, all user accounts. Finally, the intelligent contract, responsible for the characteristics of the kittens, can be modified by the developers and has a closed code.
Some users compare this game with a pyramid. A new generation zero cat appears every fifteen minutes and its price is equal to the average cost of the last five cats sold plus a 50% surcharge. The higher the generation, the slower pets are reproduced. The zero generation kittens belonging to the developers are the most expensive. By selling all the animals produced, developers can earn an income of over 2.2 million ETH – and this sum does not include commissions for every action such as mating and selling.
It can not be said that CryptoKitties' popularity has paralyzed the Ethereum network, but it has certainly made its operation much more complicated, with prices becoming expensive and transactions that congest the blockchain. It is not yet known how it will end, but if the number of reproductive applications grows, the decentralization of Ethereum could be seriously attacked.
Myth or not?
Decentralization is an integral part of any cryptocurrency. However, the numerous defects that are reoccurring while the Ethereum blockchain continues to be used under different conditions, confirm that the network is not decentralized to 100%. There is still a lot of work to do to eliminate the centralizing factors. The hardest part of this would be to create incentive conditions for those who build decentralization – miners and validators. One of these highly anticipated updates is Casper, which is scheduled for the summer-autumn of this year.
"The unicorn of decentralization, does it really exist? 90% of the mining power is owned by 16 miners in Bitcoin and 11 in Ethereum." – Emin Gun Sirer, associate professor @Cornell #genesislondon pic.twitter.com/CiHCIA3FsS
– Dolfin (@DolfinHQ) 22 February 2018
Is decentralization just a myth or are inevitable changes necessary? It is no surprise that Cornell's professor Emin Gün Sirer compared them to unicorns: they are beautiful, everyone would like to believe it, but logic does not allow it.
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