The crypto winter is in full effect, and despite propaganda like the “Long Live Crypto” ad from CoinBase, the blockchain looks more fallible than ever — especially when it comes to the tech’s efficacy in providing a decentralized alternative to traditional financial systems.
In a new analysis, Defense Advanced Research Projects Agency (DARPA), in conjunction with Trail of Bits — a cybersecurity research firm that consults for Big Tech players like Facebook and Google — the agency analyzed whether blockchain technology, which serves as the underlying transaction ledger for both Bitcoin and over 10,000 other cryptocurrencies, is as decentralized as its biggest proponents suggest.
The results are... well, here are some highlights:
- Four mining pools (collectives that consolidate mining power) make up 51 percent of the total Bitcoin mining activity, with two mining pools doing the same for Ethereum.
- 60 percent of Bitcoin traffic is confined to just three internet service providers
- About 4.5 percent of bitcoin owners control a whopping 85 percent of the entire bitcoin pool
All for one and one for all?— The report highlights the range of centralization sources that exist within blockchain technology, and it reiterates some points from a study that was published earlier this month.
The key takeaway from that analysis, which was conducted by a handful of Texas universities, was that the blockchain network is vulnerable and a stronger degree of power is concentrated within a smaller subsection of users.
Even for a blockchain network as vast as Bitcoin’s, there are still a small subset of privileged entities that theoretically could re-write past transactions, lending weight to the imbalance of power in the system. Tor is also essential to the entire ecosystem, as it accounts for 55 percent of Bitcoin nodes, making it the largest network provider for the cryptocurrency. Any compromise of the anonymized browser, could have cascading negative repercussions.
This report goes deeper into some of the decentralization myths surrounding crypto, so I’d recommend giving it a read if you’re interested. When Bitcoin was first created, the idea of a democratizing, self-sustaining digital currency was novel. Naturally we’re coming back down to reality, which in this case appears to bring the blockchain further away from a breakthrough, and closer to the same, old existing mediums for monetary exchange.