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Elly Zhang is director of the partnerships of Heliocor, a leading regulatory technology company based in London. He previously led growth initiatives in Asia for the Cryptocurrency Wallet blockchain.
The following is an exclusive contribution for the 2018 year of CoinDesk under consideration.
While the prices of encryption continue to fall, 2018 ends with a harsh note for the global blockchain community.
For some, this is a moment of reflection, a moment to shake off the hype and really evaluate what we have achieved in recent years. But it is possible that this is just the optimistic starting point of things: maybe it's really time to look back and evaluate where the DLT technology will go in the future, and whether or not we spent all of our time constructively …
The key to everything is revisiting our main hypotheses. Since the blockchain was conceived, the debate on "decentralization" has been at the forefront of the speech. This is because the main strength of technology is and continues to be its promise to cancel real financial transactions in a way that is fundamentally different – and better – from the system we know today.
As we are discovering, however, it is possible that blockchains are centralized in some way and decentralized in others.
Extraction
The first step for many when dealing with decentralization in public cryptocurrencies is mining or the way in which most networks guarantee the validity of their registers and coined the new cryptocurrency. It is safe to say that mining on most cryptocurrencies does not take place as originally planned (with many users participating significantly).
Miners and mining machines had never been conceived as part of the central infrastructure that powers any blockchain technology. Rather, mining extraction has emerged exclusively as a way to control the partition of limited "coins" resources for any given "blockchain" product. In reality, however, for the purposes of decentralization, mining should really be a redundant process.
However, the economies of scale of bitcoin mining – the more power you have, the more revenue – is affecting progress.
Let's take a recent example, the launch of the mining giant Bitmain by AntMiner X3. Designed to extract Monero, cryptocurrency users quickly decided to modify the algorithm and remove mining machines in response to the release. Bitmain machines can now only continue to extract the original algorithm, now present on a new currency called XMC (Monero Classic).
Monero itself now uses only CPU and GPU resources on personal computers for mining. The result, we are told, is that the system is more "decentralized", even if we have little in terms of metrics to determine if this is true.
Code
That said, the biggest challenge for decentralization (in the public blockchain) remains who controls the code updates.
Bitcoin blockchain is managed by the Bitcoin Core team. In reality, many changes are preceded by intense negotiations and debates both online and offline. Only once consensus is reached is then implemented. The bitcoin subdivision into cash can be seen as the result of a breakdown of these negotiations.
However, it is just one example of how the development process can be decentralized (in the sense that anyone can propose and write code), and yet very centralized and intrinsically political, as it requires incredibly specialized knowledge (and a lot of social capital) to also participate in these debates.
Another example is Ethereum, which can be said to have a different approach, one of the critics claims that it is more similar to authoritarianism. We take the failure of DAO, which has allowed the theft of many thousands of ether. In this case, a small group of Ethereum developers forced users to forcibly restore their blockchain story. The original Ethereum continues now as the Ethereum Classic.
In these two examples, we can see that the so-called decentralization is taking place at the application level. At the development level, be it open source or blockchain, some degree of centralization seems to be in practice.
Policy
But if centralization and technical centralization are problems that we can overcome with time, there is a more fundamental problem identified in the two examples above – the blockchains introduce politics.
Although there has always been a policy in any process involving people, with regulators piling up in the mix, I anticipate that the politicization of the blockchain will continue to worsen. In fact, I believe it is the biggest challenge for the industry.
From my point of view, human beings are primarily decentralized creatures – we live our lives as small, distinct and autonomous units (a family structure, a company or a team). However, with urbanization and the course of human history, society has inevitably moved towards centralization, as it brings many inevitable advantages. The administration and catering of any population within a well-defined area under a government is a system that has proliferated around the world for good reason.
In other words, decentralization does not have absolute superiority over centralization. This can also be applied to bitcoin: bitcoin naturally does not save transaction costs and at the same time guarantees the same security of a centralized monetary system.
What decentralization does, however, is to remove the single point of failure caused by centralized structures, diversify risks and make it easier to identify problems. At the same time, if we adopt more transparent algorithms and mechanisms, we can spread any risk currently characteristic of blockchain and cryptocurrency technologies.
Ideology
Separated from politics, it is the question of the ideologies that enable them.
Bitcoin, for example, can be said to have created an ideology. At the beginning of bitcoin's birth, many people participated and supported its development because they believed in absolute freedom, lacked confidence in the government and were firmly convinced that any concentration of capital leads to corruption.
From a technical point of view, there will always be an obsession with decentralized systems. As mentioned earlier, creating such a system efficiently and "decentralized" could at the moment be beyond the thinking of this generation's software engineering teams.
Where is the next evolution of a "skunkworks" style team, removed from traditional management constraints and how does it reconcile the needs and needs of extremely heterogeneous user groups?
Despite the various problems of traditional institutions and organizations, the blockchain's design principles and hypotheses make it difficult to convince me that a large-scale decentralized system will be more reliable than a centralized institution that is regulated, protected and balanced. I think the future of blockchain can become a tool to create authentic value in some specific areas, but a successful system will be the result of a compromise between multiple project dimensions.
expectations
What does this mean for true believers?
For one, it means that people who think that the blockchain will change everything are too romantic for decentralization. If a blockchain project says it is looking for decentralization and can process 100,000 transactions per second safely and reliably, remember: many have had this goal in the past and no one has ever succeeded.
I found a way to capture exactly my thoughts above: "If something is apparently too good to be true, it probably is."
In short, it might be better to consider the blockchain a sociological revolution, not a technological revolution. Technology is not new. Just as Steve Jobs brought together many ideas in the iPhone, Satoshi Nakamoto assembled bitcoins with established technology.
In the coming months and years, entrepreneurs and developers will have to keep this in mind. We need to understand both commercial realities and human nature, but we also need a dose of realism.
Have an opinion of 2018? CoinDesk is looking for proposals for our 2018 under consideration. News via e-mail [at] coindesk.com to learn how to be involved.
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