A few days back, Ethereum co-founder Vitalik Buterin Vitalik Buterin shared seven questions with the people in the crypto universe to answer. A BCFocus story on Buterin’s conversation with Fred Wang and Vivi Lin on the aforementioned seven questions received an overwhelming response. One response was from Buterin himself.
Vitalik responded after reading the story, saying: “I could come up with much better questions if I had more time.”
The conversation took place on a social media (WeChat) group called, Mars Finance. The group is owned by Wang and his partner Lin.
We hope he does, and in the meanwhile, we would like to share some of the replies to Vitalik’s hard questions that came pouring on several platforms like Reddit and also through e-mails. Most of them really appreciated Vitalik’s effort to think and pose such questions.
One of the Redditors who goes by the username, RTylerSmith wrote, “One of the reasons I think Vitalik is a great leader is his willingness to be intellectually honest and fearless in his evaluation of the ecosystem. He does not let his love and passion for decentralization cloud his analysis and challenges the entire community to work on the pain points.”
Bitmain and affiliated pools now have ~53% of all bitcoin hashpower. Isn’t this a really big problem?
A redditor who goes by the username SharpMud responded, “No, not really. If this remains true after global adoption then yes, but the tech is still far too new to be overly concerned about the number of miners in the space. It is something to be aware of, but no reason to believe this will remain true.”
We also received an email by the name of Satoshi Nakamoto ( we cannot confirm the authenticity of the person.)
He said, “As we have already seen some of the possible consequences of 51% attacks made against smaller cryptocurrencies, we already know that control of ~53% of all bitcoin hashpower by one single entity, group, or affiliation opens bitcoin up to abuse, and or outright misuse, theft, and/or fraud. Whether or not this becomes a really big problem is no longer contingent on whether or not Bitmain and affiliated pools can abuse, misuse, steal and/or defraud cryptocurrency investors, but whether or not they will engage in such harmful behavior.”
Nakamoto added: “Since such actors participate in the bitcoin ecosystem for economic gain, then such actors would only introduce problems into the bitcoin ecosystem when the economic incentive to participate as a good actor outweighs the economic incentive to act as a bad actor. The consequences of this dichotomy mean that as long as bitcoin remains sustainable with economic incentives that outweigh the costs to participate in the bitcoin ecosystem, then we can count on Bitmain and its affiliated pools continuing to act as good actors.
However, should such actors find a way to increase the profitability of the bitcoin ecosystem, without significantly impacting its sustainability, or if the developers of the bitcoin ecosystem reduce the economic incentives to participate in the ecosystem, then it is very likely such actors would use their hashpower to exert influence over the bitcoin ecosystem contrary to the developer’s intentions. As this dichotomy applies to other cryptocurrencies, this means that the transition from proof of work to proof of stake in the ethereum ecosystem may be inhibited if enough participants that have invested heavily in PoW hardware resist the change.
Penta Global Blockchain Foundation posted its reply on Medium:
“Mining pools are an existential challenge to ‘proof of work’ (PoW) blockchain consensus mechanisms — basically they function like cartels. They concentrate ‘decision making capacity’ in the hands of an elite few, whether through mining pool hashpower or super node ‘proof of stake’ (PoS) structures. For many, clustering together this power is antithetical to principles of decentralization, which we view to be a core tenet of the Blockchain Movement. A key contribution to ‘socioeconomic evolution’ is placed at risk if blockchain platforms abandon the quest to become truly decentralized autonomous communities (DAOs are similar to these).
Ori Brafman and Rod Beckstrom published ‘The Starfish and the Spider’ in 2006, about ‘the unstoppable power of leaderless organizations’. The description on Amazon aptly summarizes the central metaphor of the book: ‘If you cut off a spider’s leg, it’s crippled; if you cut off its head, it dies. But if you cut off a starfish’s leg it grows a new one, and the old leg can grow into an entirely new starfish.’ Our own group Penta has adopted these sublime ideas as we deploy our company’s blockchain technology platform. A related treatise also adapted is Eric Raymond’s ‘the Cathedral and the Bazaar.’ Published about a decade earlier than Starfish, it too has helped clarify thinking on ‘decentralization’ in the context of blockchain.
There is strength and robustness in decentralisation as blockchain has shown, and hopefully a bright future ahead for communities bravely taking that journey. But, beyond profiteering, is there anything to be gained from cartel behaviour? Are they simply ‘conspiracies against the public?’ Our opinion, the 53% and increasing control of bitcoin hashpower held by Bitmain-like ‘spiders’ exerts a regulatory influence on BTC. For better or worse, they have become centralized and private self-managers of chains operating under PoW or PoS consensus mechanisms, just like cartels in other industries.
At the start of the California and Australian (one of the authors resides in Melbourne) gold rush eras everyone holding a pickaxe and simple gold pan had opportunity to benefit. But just like after those first heady months 150 years ago, with Bitcoin the accumulation of hashpower and the formation of mining cartels is threatening the existence of lone miners to profit. For proof of stake systems there is similar pressure towards centralisation of control, but perhaps for slightly different reasons involving transactions per second (tps) rates.
Maybe cartels are a natural element of business, and history is repeating itself. A problem for those projects engaged in building peer-to-peer, decentralised ecosystems? Most certainly, and these issues bring into sharp relief a vulnerability (‘flaw’) of Nakamoto’s ‘Bitcoin: A Peer-to-Peer Electronic Cash System’. Empirically, PoW and related consensus mechanisms appear to equilibrate over time to cooperative cartel systems, rather than sustaining themselves through decentralised competition. Maybe now we should seek fresh approaches to point the way forward, and a new generation of technologies to meet this challenge.”
If not enough actors transition to PoS, as a majority will be required, then the ethereum ecosystem will hard fork once again when the attempt to remove PoW is initiated. The fact that anyone can very easily participate in PoW, but that participation in PoS will be limited to investors in the ethereum ecosystem will heavily influence this outcome.”
Why aren’t there any useful large-scale applications yet?
Nakamoto wrote, “The primary barrier to the development of any useful large-scale applications is not a technological limitation, but a sociological limitation. Until cryptocurrency ecosystems have developed enough of a history that demonstrates stable ecosystems that are reliable, secure, and difficult to abuse and/or misuse, then such ecosystems will primarily be limited to early adopters, research use, experimental use, and ideological actors.”
Another Redditor who goes by the username greencycles wrote, “Applications that use blockchain do not have an inherent edge over applications that do not. Large-scale applications succeed for reasons other than their underlying technologies (in this case blockchain). Marketing, psychology, sales, UI/UX, creativity, graphic design, great leadership, among many other facets are all equally important and must be managed and created properly. Defaulting to “decentralization” as your marketing ploy is ineffective because the average joe DOES NOT CARE ABOUT DECENTRALIZATION.
To date, no blockchain application has been managed or created with a great user-first design that captures the attention of the average person, and frankly, there are no functionally exciting DApps in existence. The first large-scale application that pushes itself into the global zeitgeist will have the following quality: you’d be able to completely delete its blockchain functionality and it would still strongly appeal to a large global audience.
For now, the first large-scale application will most likely be an existing company with an already bulletproof concept/reputation (Facebook, Robinhood, Salesforce, Amazon, NASDAQ, ZipRecruiter, Snapchat, Twitter, YouTube, Google) that simply adopts blockchain as an enhancement to their platform.
Blockchain is not exempt from the fact that an overwhelming majority of people use technology without having any cue what’s under the hood; In fact, with blockchain, this phenomena will be marvelously amplified. Until world-class UI/UX, marketing, and sales professionals are looped into this space (or are simply given enough time to complete their current goals) we can only expect more gambling and cryptokitties (not necessarily a bad thing for the time being).”
Why are there not yet good solutions to account security? When will the problem of account hacks and thefts be solved?
Redditor SharpMud responded, “You can’t solve theft. We need better solutions but also more responsibility. People are smarter then we give them credit for, we are just too used to safety and security without thought. People will need to adopt better practices and they will.”
Nakamoto’s response to the question was, “Account security is not a problem unique to cryptocurrencies, and continues to be a problem for most digital age (software and hardware) industries, and will continue to be an on-going problem indefinitely.
The problem of account hacks and thefts are likely to be minimised to the best possible extent when operating systems incorporate cryptocurrency security, and when agents develop third party security holding “accounts” for the purpose of holding cryptocurrencies for those unable to maintain sufficient personal security.”
How can decentralized apps work well even with 5-10 second blockchain latency?
SharpMud wrote, “Not all apps require less than 10 second latency” Nakamoto mentioned, “Decentralized apps will likely need to move beyond a monolithic blockchain design to a pipelined blockchain before such is possible. Because PoW disincentives such, and PoS disincentives participation from just anyone, a hybrid Pow/PoS blockchain design will likely be required to make such a pipelined blockchain possible.”
PoW is burning billions of dollars per year, even more than all scams and thefts combined. Isn’t this a big tragedy?
SharpMud replied writing, “We are not burning billions of dollars. We are spending billions of dollars to create a secure ledger. The idea we are wasting it is false and misleading. How much money are we burning running banking servers, brick and mortar branches, atms, fraud departments, etc?”
Nakamoto wrote, “As of yet, cryptocurrencies are still only consuming a small percentage of global economic and energy resources. The big tragedy is not that concurrency is currently wasteful of energy resources, but that very few recognise the opportunity to couple cryptocurrency energy usage with excess renewable energy production to increase our ability to use and rely upon renewable energy over non-renewable energy resources.
Cryptocurrency enterprises coupled with renewable energy infrastructure buildout could literally fully finance the removal of our reliance on non-renewable energy resources.”
What are the centralization risks in proof of stake?
SharpMud wrote, “Freezing accounts is possible, reversing transactions, restricting scaling, and introducing middlemen. We have also seen how the system can adapt by routing around damage, aka BCH”
Nakamoto said, “The centralization risks of PoS are that those with the largest investments in a cryptocurrency will seize control of a cryptocurrency and will continue to distribute such resources to remain in control of a cryptocurrency. A cryptocurrency should never fully transition away from PoW in order to minimise such risk, as PoW will always have the lowest barriers to participation in a cryptocurrency ecosystem.”
Given how EOS governance has turned into an epic fail, doesn’t this mean that all on-chain governance including DAOs is fundamentally flawed? How can any DAO deal with bribe attacks, plutocrats and other risks?
“Yes, I think so,” SharpMud wrote. Will Glynn replied via email, “For the last question presented, this is when a political science background would be apt. Coders don’t understand politics in aggregate. Democracy does not work, even if its rules are coded, the issues Vitalik brings up are inherent. The voter with the most money will have the most say and the minority is always oppressed. This was and always has been my only concern in the Tokenomics field. The other questions have solutions that will be revealed with time. This is the only one that requires a total remodeling. There must be a deeper understanding of checks and balances, and a Republic, in order to properly model this new form of governance. There is no authoritative knowledge in crypto because it is an agglomeration of Economics, Politics, Game Theory, Cryptography.. etc.”
[Disclaimer: We cannot confirm the authenticity of the person using the name Satoshi Nakamoto]
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