Hey everyone, it’s Whatever Wednesdays again. Today isn’t really a crypto weekly post because I wanted to talk about something more specific… “The Crypto Crossroads“. This should be a short post.
The Crypto Crossroads?
A lot has changed since the advent of Bitcoin. An unknown creator and a somewhat shady past with Silk Road, but something that has stayed (mostly) constant is its immutability and security. It remains the prototype and poster child for decentralization. There is some beauty in simplicity because so far it has been able to stand the test of time.
However, things are changing. The second generation brought the birth of Ethereum, with the idea of “strapping a programming language” to the blockchain, but still retaining the Proof of Work consensus mechanism that Bitcoin uses. There are plans to eventually change this to Proof of Stake, but this hasn’t happened yet. Ethereum has had its own set of issues with the DAO hack and Parity hack and the fork off to Ethereum Classic. To be fair, the issues weren’t necessarily with Ethereum itself, but with its smart contracts.
The issue that comes up, and keeps coming up is… do we bail out consumers? When bad things happen, do we fix them?
Ethereum Classic basically said no, if we bail people out and “fix things” retroactively, then we’ve given up a lot of what makes blockchain special — its immutability and censorship resistance. However, we aren’t talking about a few dollars or even a few hundred dollars… we’re talking about MILLIONS of dollars. As I write this, Ethereum is still considered the platform to build upon, although Ethereum Classic has seen some good growth recently. To me, it seems that back when the hard fork happened, people weren’t ready to accept huge losses and still wanted a bailout.
Why does this matter?
It’s pretty simple in my opinion…
You can’t have it both ways.
If you want to enjoy immutability and censorship resistance, then you can’t bail out your users. The problem is that once you bail people out, you’re on a slippery slope. You’re accepted a centralized authority to fix problems. Now you have to decide, where is the line to bail people out? Is it thousands, or is it only just millions?
Don’t get me wrong. I actually like Ethereum. I’ve talked about it many times. I think it’s a good platform and it’s done something very intersting. However, I do have my concerns about it because of its history of bailing out the DAO.
What about the 3rd generation?
The 3rd generation hasn’t been defined yet. However, the major contenders for “3rd generation” right now are probably, EOS, NEO, ADA, and IOTA. Everyone is trying to solve the problems of scalability, interoperability, and sustainability.
However, today I want to comment on EOS, since their mainnet just launched.
There has been a lot of criticism about the mainnet launch, like the way it was handled, etc. However, I think any mainnet launch can be expected to have some degree of problems. Unfortunately for EOS, all eyes are on them with their $4 billion year long ICO.
My major concern about EOS is that it’s moving more down the slippery slope that started with Ethereum. While it uses a proof of stake mechanism called Delegated Proof of Stake, there are only 21 Block Producers at anyone time. For simplicity, we can consider these block producers as 21 “employees” of the EOS blockchain. Before everyone starts screaming at me that there are more than 100 Block Producer Candidates (BPC), please understand that I realize that. However, this doesn’t change the fact that at any one time there are only 21 Block Producers.
Well, 21 isn’t that many. Yes, you can vote Block Producers out, but that may be difficult when you have large groups of “whales” (individuals holding a lot of EOS, like millions). Then you must also realize that being a Block Producer requires a certain amount of hardware and technical knowledge to be considered. For this reason, I think we must accept that we are giving up a certain degree of decentralization for scalability/efficiency. When the blockchain froze, the 21 Block Producers had a “Consensus by Conference Call” in order to try to fix the problem. Then when you consider things like the ability to freeze accounts, and you realize that Block Producers have a significant amount of authority.
That’s just part of the trade-off, you can’t have it all.
However, here are questions we need to answer in the cryptocurrency space as a whole at this “Crypto Crossroads”:
- “How much decentralization do we really need?”
- “How much censorship resistance are we willing to give up for scalability/efficiency?”
- “How important is immutability?”
If we consider Bitcoin to be the prototype, then it seems so far each generation has tried to become “less Bitcoin-like” in regards to decentralization, immutability, etc. This is because of the desire to get more scalability/efficiency. All eyes are on EOS for now to see what they are going to do… and maybe a highly efficient, but less decentralized coin like EOS may be necessary for commercial scale. However, how much better is that over our current system… and is it worth it?
Perhaps the world isn’t ready to be decentralized yet and requires the baby steps that EOS brings… but I worry that we’ll lose a lot of what makes blockchain so great if we continue down this route.
How important is decentralization?
How much are we willing to sacrifice for efficiency?
Is that trade off worth it over the current (centralized) regime?
You can’t have it both ways.
Perhaps the world isn’t ready to be decentralized yet and requires the baby steps that EOS brings…
…but I worry that we’ll lose a lot of what makes blockchain so great if we continue down this route.
Agree? Disagree? Questions, Comments and Suggestions are welcome.
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