Blockchain and decentralization play a role of synonyms. But can we assert absolute decentralization? Is invulnerable decentralization a myth or reality?

Blockchain and decentralization nowadays play a role of synonyms. The technology makes it possible to create a network in which everyone will be equal, and all information is distributed over a number of computers in the world. This characteristic is of particular value for banks and other commercial institutions, it increases the security and speed of operations.

The fact that Ethereum is more decentralized than Bitcoin, no one doubts. This is evidenced by a study conducted in February 2018 by Professor Emin Gyur Sierer, who in numerical terms revealed the degree of decentralization of both systems.

But can we assert absolute decentralization? Over the past year, this issue has repeatedly been raised crypto community and the developers themselves. After all, there were a lot of reasons for that, which made us think about the opposite. For example, the manipulation of commissions within the network created as a result of the massive launch of the game CryptoKitties. Invulnerable decentralization is a myth or reality? In order to understand, let us turn to the very creator of Ethereum and its concept of decentralization.

Myth number 1. Decentralization is a distributed network

In his blog on Medium, Ethereum founder Vitalik Buterin at one time expressed many important thoughts about the need for decentralization and ways to achieve it:

"Decentralization is one of the fundamental concepts in the detachment and the absolute majority of research and development is aimed specifically at its creation and improvement, but the precise meaning of the word is still in question"

Immediately he cites "the most ridiculous, but unfortunately, the most common" visual explanation of decentralization, which operate users and even developers. While the last two images should obviously be reversed, "decentralization means that none of the nodes has the ability to control the processing of all transactions on the network."

Myth number 2. The blockchain is resistant to errors

What to do, even if the developers themselves are confused in the definition of decentralization? To this, Bouteria has its own classification, which allows to determine whether the network is centralized or not:

Architectural decentralization

Criteria: how many PCs in the network, how many of them can fail, so that the system continues to work stably?

Political Decentralization

Criteria: how many people or organizations control the computers that make up the system?

Logical decentralization

Criteria: does the data structure resemble more a whole or a link of individual objects? If you cut off half of the system (including both providers and users), will it continue to work?

Often, architectural centralization leads to political, although in computerized communities this can be avoided (which can not be said about logical centralization, which in turn makes it difficult to form an architectural, and at the same time, political decentralization).

Why is decentralization so important:

• Complexity of collusion. Participants in a decentralized system will hardly be able to enter into collusion among themselves in order to jointly influence the development of the system.
• Resistant to attacks. Disable the entire system is almost impossible, whereas in centralized networks it is enough to attack the central point.
• Resistance to errors. The probability of accidental failure is reduced to zero, because uninterrupted operation is provided by many computers at once.

It would seem that everything is simple. But at the protocol level, the situation looks somewhat different. So, stability to errors is useless in the event that for some reason the refusal produced at once a large number of component computers.

Vitalik Buterin gives an example from real life: The failure of four engines in an airplane at once would seem to be an unlikely event. But what if all four engines were assembled in the same factory and controlled by the same irresponsible worker? The whole party is a marriage, and the failure of all elements simultaneously becomes very likely. And the results are catastrophic.

Myth number 3. Network Ethereum is protected from attacks

The fact that Ethereum is susceptible to attacks, it became known back in September 2016, when a series of DDoS attacks led to a significant delay in the operation of nodes. Resistance to attacks works faster when using the PoS (Proof-of-Stake) algorithm, rather than PoW (Proof-of-work), this is one of the reasons why the Etherium is now switching to PoS. Then, after a series of unsuccessful attempts, a solution was found:

"We have made changes to the process of mining, in which there is now a temporary automatic reduction of the gas limit x2, when the miner sees a block, the processing of which takes more than 5 seconds. This allows you to automatically rebuild the system, just as it was done today. "

However, a year later, on October 4, 2017, ironically, the new Ropsten test network underwent a new attack, in which the code for the new Byzantium update was being tested, which was supposed to prevent such attacks by increasing the cost of gas.

Myth number 4. Pool agreements are impossible

Solo-mining Efir today no one is seriously engaged: the miners are united in large and small pools. The special danger for decentralization is represented by large ones, since they at their discretion dispose of the capacities of all the miners connected to them.

For example, a pool operator has the option to include only the transactions that it needs in the generated blocks. Therefore, one of the goals of modern mining, to which many pools go, is to provide distributed extraction of blocks.

Today there is such a situation that 70-80% of the total hash of the network can belong to just a few of the most popular pools; this applies to virtually any crypto currency, the complexity of which has already outgrown certain limits, that is, solo-mining has become impossible in terms of profit. As a result, pool owners influence the policy of the network as a whole.

Until recently, the risk of full centralization of mining seemed far and far-fetched. But in 2017, Dr. Loy Lu expressed the view that the situation is more dangerous than it seems, and measures to strengthen decentralization should be taken as soon as possible.

Myth number 5. The owner of the wallet has sole access to funds

One of the features of crypto currency is that no one can make any transactions with funds that do not belong to him. In most tokenized systems, this is done through the following scheme: each of the transactors should have the ability to allow the operation to be performed to meet the requirements of the previous transaction. More on this in the blog of Bitfury. This implies having the right private key and avoiding double transactions or theft.

As for the Etherium, it has a full-fledged version of smart contracts. A "smart contract" is a program that runs when the transaction starts. In addition, it is the main "building material" for the creation of decentralized applications (dApps).

The technology of smart contracts has many advantages in terms of security and convenience, but there is a slight nuance. Holders of digital wallets can not be called full owners of funds - their custodians are the contracts themselves, which contradicts the original principles of crypto currency.

Theoretically, a running contract can perform any actions without the user's permission. Of course, you can check the correctness of actions through open source code, but not everyone can do this. The solution to the problem could be the creation of just one contract for the audit, but so far we have what we have.

More recently, the NEO platform collided with the vulnerability of smart contracts. As it turned out, hackers could perform any actions with tokens (increase or decrease the displayed amount, burn coins) using only one parameter in the smart contract. True, the developers managed to calm the public by the fact that the real state of the block is not affected.

Also, the OKEX exchange in April was attacked by hackers who discovered the vulnerability of the batchOverflow parameter. The exchange had to temporarily suspend all trading operations until the code for smart contracts was updated.

Myth number 6. Manipulating network settings is not possible.

In 2017, the investment online game CryptoKitties took more than 15% of all Ethereum traffic, having received the nickname "Ether Killer". Its popularity is due to the simple and at the same time unordinary function, allowing to "cross" different virtual seals and get offspring. The more offspring are more unique, the higher the reward. Characteristics are pretty much, so each pet is different from the others.

What's wrong with Crypto-kittens and other applications of this kind?

First, the huge demand for seals increased the queue of transactions waiting to be included in the block. At the same time, the "co-owners", wanting to get priority, are paid a 20-fold commission. This increases the cost of gas for other users of the network, creating traffic jams from those that have not passed or are waiting for their turn.

Secondly, the rapid rise in prices. If immediately after the launch of the application, one cat cost about $ 2 in the equivalent of ETH, then a month later the price was $ 10, and after 2 months - $ 25. And Genesis cat numbered 1 and at all bargains for $ 113,000. And the developers did not plan any price criteria for seals, people themselves decided that, for example, pets on a gold background are the most valuable. Information about the cost of seals can be viewed on the site developed by the fans.

Than all this threatens:

• Developers fully control the game and smart contracts. Cats are gradually growing in price, and each contract can be suspended - according to developers, this is a security measure in the event of hacking one of the three management accounts owned by the team. However, the key belonging to the main account is able to freeze the entire game and, consequently, all the accounts. Finally, the smart contract, responsible for the characteristics of the kittens, is available for modification by the developers and has a closed code.
• The effect of the pyramid. A new zero-generation cat appears every fifteen minutes, and its price equals the average cost of the last five cats sold + a 50 percent surcharge. The higher the generation, the slower the reproduction of pets. Cats of the zero generation are developers' property, and they are the most expensive. With the sale of all derived animals, developers can earn an income of over 2,200,000 ETH. Plus commission for every action (mating, selling).
• Inability to exchange and lack of audit. The creators did not expect the game to be so successful, so they did not fully finalize the practical component of the system. As a result, the effectiveness of the platform, but also the proper security for owners of large sums, is questionable.

It can not be said that the work of Cryptocotytes paralyzes the work of the Etherium network, but makes it much more complicated - that's for sure. Transactions are expensive, gas is lost. It is not yet known how this will end, but the fact that "cotovings" puts the decentralization of Efir under attack is visible to the naked eye.

ASIC as a new threat

A couple of months ago there was news that a well-known company Bitmain was launching a new mining-installation ASIC for the extraction of Ether. This was learned by Christopher Roland, a cryptanalyst who traveled to China. The product is scheduled for release in the second quarter of this year.

Historically, Ethereum has been dominated by video cards, and the introduction of new super-power equipment has alarmed the public. This is a potential problem of centralization, although it is not yet possible to say with certainty whether the event will seriously damage the operation of the network. Depends on what power will be given out by ASIC.

However, it is worth mentioning that, in addition to Bitmain, similar plans were voiced by at least three other manufacturers. So, the centralization will not be so explicit and sharp.

Decentralization is an integral part of any crypto currency. However, the numerous flaws that flow to the surface as Ethereum blockade is used in different conditions, confirm that the network is not 100% decentralized. There is still a lot of work to eliminate the centralizing factors. The most difficult part of this will be connected with creating incentive conditions for those who build this decentralization - miners and validators. One of such updates, which has high hopes, will be Casper, scheduled for the summer-autumn of 2018.

Conclusion:

The answer to the question whether decentralization is only a myth, one can say yes, rather than no. It is no accident that Professor Emin Gyur Sierer at the Genesis conference in London compared it to unicorns - they are beautiful, everyone would like to believe in them, but logic does not allow. Therefore, the centralization of decentralized systems in the near future will not lose its acuteness and relevance.