Two Kinds of Centralization

Recently, I wrote that, by calling it a 'Central Bank Digital Currency', it's too narrow, our scope of wariness. The ‘Central Bank’ part is not to be sneezed at. Just don't end up watching for wolves and getting mauled by a bear. It’s the centralized aspect itself which demands vigilance. If our form of money is centralized, then expect it to be conquered. This might come as a dramatic takeover, but more likely would happen with bribery and blackmail behind the scenes. I want to flesh this idea out with examples. Specifically, I want to look at the two main kinds of centralization with a cryptocurrency: centralized ‘mining’ (i.e. the minting of digital currency) and centralized development.

This issue is especially relevant at the moment due to the controversy about Mara mining and the op_return change. In something which can be reasonably be described as low level corruption, one of the world’s biggest miners of bitcoin (BTC) allows anyone who pays enough money to get spam on the bitcoin blockchain by skirting all the other ‘fastidious bookkeepers’, as I call them, (i.e. nodes). Essentially, this exploits bitcoin’s system in the following way: Bitcoin is a relay network, and a two-stage, rules-based verification procedure. The first stage of verification is in real-time; each transaction gets verified almost instantly by each fastidious bookkeeper. The second stage of verification happens whenever the latest update of the blockchain arrives; each fastidious bookkeeper checks the transactions again. The exploit stems from the fact that relays are not perfect. A relay passes information from one single ‘node’ to the next, until all nodes have it. Relays must be designed to abide a real-world-scenario of lost messages and unreachable nooks and crannies. No node should be punished for missing a transaction at stage one. It's open to cheating. "Oops, I didn't see that one!" But more pertinently, "oops I only saw those ones!" That’s how spam gets on the blockchain via Mara.¹ But enough about this controversy for the moment. To learn more, I recommend Bitcoin University, although note that it takes a very strong anti-spam position, so to even things out, you might want to listen to Shinobi.

Miners are so important because they make the official updates. They make the ‘blocks’ of the blockchain. They must follow the rules; but there's wiggle-room. Censorship could be snuck in the back door, because ignoring certain transactions is not illegal. A transaction might include a picture of the sender’s penis. It’s still a valid transaction. Each fastidious bookkeeper would probably not be keen on storing that forever. Things could get even worse. If enough miners band together, they could mine empty blocks and effectively hold the users to ransom. The 21st century equivalent of a miner's strike!

The problem of mining centralization is not academic. It's already here. The two biggest cryptocurrencies, bitcoin (BTC) and ether (ETH), have centralized mining.² If you look at the top 10 cryptos by market cap, it’s hard to see signs of decentralization. I have an unfortunate inkling that people will care less and less.

At the moment, however, I'm seeing the glass half full. Things look bleak, but hope lies in the fact that centralized mining rests on economies of scale and economies of scale wane. Chipsets, for example, might become scarce. More on this topic in another blog post.

I’m not so optimistic about centralized development. Centralized development means that the ‘devs’- the authors of cryptocurrency software- are few and cliquey. In theory, everyone can write open source code. In theory, everyone can produce music in their bedrooms. Do you see many truly independent musicians these days? We live in monopolistic times. Devs do keep that amateur vibe, but it’s misleading.

First, don’t be so naive to think that the three-letter agencies can’t pull off a ‘regime change’ with a bunch of Computer Science graduates. Second, devs are elitist. I’ve experienced it first hand. Not that they aren’t nice people. It’s just that code-writers are by nature highly intelligent and expert in a very narrow field; this is fertile ground for elitism. “Thanks, but we know best.”

The answer is to make sure that the people running the fastidious bookkeeper nodes always have options and boo loudly when some dev tries to push some unwise novelty.

A.I. is a ray of hope. Basic coding by A.I. will get better and better. Hoi polloi will be able to code alternatives, at least at the Alpha stage. The mere threat will increase leverage.