Centralisation v Decentralisation?
One of the biggest problems if I can call it that with crypto is the amount of information that changes or evolves with each new ICO or IPO. Even blockchain is changing not just in terms of forking but as developers look for more efficient ways of using it and coding it. The subject is so confusing especially for those of us that have not been into coins, DLT or blockchain since inception but have been dragged into it through either interest, opportunity or simple tech curiosity.
I spend a considerable amount of time as we all do reading a lot of online opinion and information it seems almost never ending the path and diversions along the way and worse, people with diverging opinions make the arguments either way more difficult to follow. Centralisation or decentralisation for instance.
In the beginning this was the goal of DLT the clue is in the letters. Distributed Ledger Technology. Bitcoin was developed to create a digital currency and the most important way to make a virtual currency free from interference (hacking or copying) is to somehow let everyone see what is where, not only that make each step set in digital concrete so it cannot be altered by anyone unless accepted by everyone. This in essence makes any virtual coin/currency decentralized because if it wasn’t then it could be controlled by whoever is at the centre. The Bank of England controls UK finances which effects what your pound is worth in the short or long term. Any savings you have are worth only what the Bank of England says they are worth by the level of inflation controlled by them. For this reason digital currencies need to be decentralised so the price of the coin in relation to other coins and fiat currencies is controlled by the market. This way confidence is established in the currency. In this situation the only way a coin could be artificially manipulated is when a “whale” dumps all or some currency they hold to lower the price artificially. They then can repurchase at the lower rate and make profit.
This is the main reason decentralisation is not only a good thing but vital to the life of cryptocurrency and DLT. Legislation, something not loved by crypto developers is anathema to this thinking because legislation delivers an element of control to a government that developers don’t want because if legislation decides the rules then they control what can and cannot be done, and how.
Gibraltar has legislation and though in its infancy the light touch by Gibraltar is proving that some legislation is needed but control is not. There are rules that govern how currencies are delivered and how the structure surrounding them must be developed but it isn’t (yet) overbearing and seems to solve governments’ need to monitor without controlling every aspect.
Coin mining is also a serious consideration. If someone can control the mining of coins by control of the nodes then this in essence gives them the ability to manipulate a coin. For example the chinese coin NEO. NEO has only 7 validation nodes which are all controlled by the NEO team. Although NEO has stated that decentralization would be gradually achieved the current situation still renders NEO to be centralized. If more than a third of the nodes go offline, consensus cannot occur and the blockchain will effectively shut down. This means that that no more than 3 of the 7 NEO nodes can go offline at any time. This relies in an lot of trust from those that buy NEO which may or may not eventually decentralise.
Another way of attacking a coin using nodes would be via a hashing attack. This is known as a 51% attack. Hashing power refers to the computational power of nodes in the network. The centralisation of hashing power occurs when the majority of computational power belongs to a single, centralised entity. Miners that control the majority of the hashing power would be able to prevent new transactions from gaining confirmations, monopolise mining of new blocks (and keep all the rewards), block any transactions at their disposal and most dangerously, they can double-spend the coins. This attack compromises the security and immutability of the blockchain.
These are just a couple of ways, there are more of how a cryptocurrency could become centralised. It is my and many others’ belief that decentralisation is the key to the freedom and longevity of crypto. Decentralisation leads to the same situation we are in with fiat currencies, the banks and governments are in charge of our currency and savings, not us.