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Witnessing the digital breakthrough

Centralized Blockchain Is a Risk for Further Development

29 May 2019 17:54, UTC
Centralized Blockchain Is a Risk for Further Development
By Denis Goncharenko

Along with the growth of the cryptocurrency industry and the emergence of a huge number of projects, specialists and common private investors have begun to wonder about the level of decentralization of the launched blockchains. Thus, a number of experts expressed their concerns about the centralization of some major projects. For example, in his article, Hugo JACQUES analyzed the top cryptocurrencies and this analysis leads to a disappointing conclusion.

Decentralization, stop it, you

To declare the nature of cryptocurrency being decentralized does not mean that such plans will be implemented in practice. Sometimes the development of a project by a limited group of people or entities leads the process to the dead end. Quite recently, a scandal in the TRON team led to the fact that the CTO Lucien CHEN left the team. He decided that TRON had departed from its original purpose:

“The whole project has developed into a monetary tool without any “decentralize the web” spirit. <...> Token distribution is centralized, Super Representatives are centralized, code development is centralized. Even the community is organized under centralization.”

Is that the perception of the fact that thoughtful ideas of Satoshi Nakamoto gradually transformed into a new tool for gaining power, finance and full control by interested persons? In the brave new world, you need to be on your guard. It should be emphasized once again: the blockchain is not manna from heaven, but a tool.

Back to the crab basket?

This was also signalled by the Moody's rating agency, in its  report for clients. The report contains the advantages and disadvantages of blockchain technology for financial institutions, where the agency also warns about the risks of private centralized blockchains.

The document describes the main features and prospects of the blockchain, explains how companies like banks can use the technology to their favour. In addition, Moody's emphasizes the difference in security between private and public blockchains, arguing that the consensus mechanisms in private models may not be as strong as in public ones, or may be absent altogether.

Obviously, Moody’s could not praise the decentralized nature of Bitcoin so openly and still noted that the risks are here as well. So, from the point of view of the agency, the decentralized system simplifies data recovery and audit, but at the same time it increases the “number of opportunities for attacks”. Still, the following fact noted in the report remains obvious:

“Private/centralised blockchains are more exposed to fraud risk because system design and administration remains concentrated with one or few parties.”

If you know how centralized databases have been recently compromised in terms of security and information preservation, you can handle a conclusion on your own.

Trust in the "unknown" and how to benefit from it

According to Moody's, the blockchain technology replaces the trust in the “known other” (other people, institutions, intermediaries) with the trust in the “unknown other” (code, entities and dynamics that are difficult to see and understand from the outside). But is that bad? No, this is just “other”, from which you need to extract the maximum benefit, and the financial world will eventually understand that.

For example, the use of smart contracts could streamline the creation and management of securities. Another promising use case is loan issuance. Putting loan information on a blockchain, along with the data of loan-backed securities, will make the communication between these parts on a bank’s business faster and more straightforward, with information updating and changing automatically. In the same report, Moody’s states that a number of EU countries have started working with the blockchain for land registries and the efficiency gains are observable.

It’s important to keep pace and hold to the achieved levels

The experience of introducing decentralization into processes, technologies of distributed ledgers, cryptocurrency — all that really means the need for developing, rather than trying to combine new schemes with the old ones. It is absurd to see how centralized blockchains try to make sense of their purpose.

We sincerely hope that the preservation of the achieved result and the demonstration of successful experience and cases studies will allow us to focus on the goal of decentralization, in order to improve the modern business ecosystem.

Image courtesy of Cryptocurrency News



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