Ethereum can be compromised more easily than most of us think. Here are six myths about the second the most popular cryptocurrency.
Amid the hype around blockchain and its potential use cases, there is much more misinformation about Ethereum decentralization. This article explores hype versus reality.
Blockchain and decentralization are now practically just the same. But can we say that decentralization is absolute? Is invulnerable decentralization a myth or a reality? Technology makes it possible to create a network in which everyone is equal, and all information is distributed across many computers in the world. This feature is particularly valuable for banks and other commercial institutions, it increases the security and speed of operations.
There is no doubt that Ethereum is more decentralized than Bitcoin. This is evidenced by a study conducted in February 2018 by Professor Emin Gür Cyrer, which revealed the degree of decentralization of both systems in terms of numbers.
Over the past year, the question about decentralization has been raised many times by the cryptographic community and the developers themselves. Is invulnerable decentralization a myth or a reality? In order to understand, let’s turn to the creator of Ethereum and its concept of decentralization.
Myth number one. Decentralization is a distributed network
In his blog on Medium, Ethereum founder Vitalik Buterin once expressed many important thoughts about the need for decentralization and how to achieve it:
“Decentralization is one of the fundamental concepts in blockchain and the vast majority of research and development is aimed at its creation and improvement, but the exact meaning of the word is still questionable.”
He also gives a “most ridiculous, but unfortunately the most common” visual explanation of decentralization, which is used by users and even developers. While the last two images should clearly be swapped, “decentralization” means that none of the nodes has the ability to control the processing of all transactions in the network.
Myth number two. Blockchain is resistant to errors
What should we do, even if the developers themselves are confused about the definition of decentralization? Buterin has his own classification for this, which allows him to determine whether the network is centralized or not:
- Architectural decentralization: how many PCs in the network, how many of them can fail to keep the system running steadily?
- Political decentralization: how many people or organizations control the computers that make up the system?
- Logical decentralization: Does the data structure resemble more like a single whole or is the relationship between individual objects? If you cut off half of the system (including both providers and users), will it continue to work?
Architectural centralization often leads to political centralization, although this is avoidable in computerized communities (which is not the case with logical centralization, which in turn makes it difficult to create architectural and, at the same time, political decentralization).
Why decentralization is so important:
- The complexity of collusion. Participants in a decentralized system are unlikely to be able to conspire with each other to influence the development of the system together.
- Resilience to attacks. It is almost impossible to disable the entire system, while in centralized networks it is enough to attack the central point.
- Error resistance. The probability of an accidental failure is reduced to zero because many computers provide uninterrupted operation at once.
It would seem that everything is simple. But at the protocol level, the situation looks a bit different. Thus, error tolerance is useless if for some reason a large number of computers’ components have failed at once.
Vitalik Buterin gives an example from real life: Four engines failure in an aeroplane crash at once — quite unlikely scenario. But what if all four engines were assembled in the same factory by the same irresponsible worker? The whole shipment is defective, and a failure of all the elements simultaneously becomes very probable. And the results are catastrophic.
Myth number three. The Ethereum network is protected from various attacks
The fact that Ethereum is subject to attacks became known in September 2016, when a series of DDoS attacks led to a significant delay in the work of nodes. Resistance to attacks works when using the PoS (Proof-of-Stake) algorithm rather than PoW (Proof-of-work) — this is one of the reasons why Ethereum is now switching to PoS. At the same time, after a series of unsuccessful attempts, a solution was found:
“We’ve made changes to the mining process, which now temporarily reduces the x2 gas limit automatically when the miner finds a block that takes more than 5 seconds to process. This allows the system to be rebuilt automatically, just as it was today.
However, a year later, on October 4, 2017, ironically, the Ropsten test network was subjected to new attacks, which was just testing the code for the new Byzantium update, which should have prevented such attacks by increasing the cost of gas.
Myth number four. Mining pools conspiracies are impossible
Ethereum solo mining is no longer seriously used today: miners unite into large and small pools. It is the large miners who pose a particular threat to decentralization since they manage the capacities of all the miners connected to them at their own discretion.
For example, the pool operator has the ability to include only the transactions he needs in the formed blocks. Therefore, one of the goals of modern mining, to which many pools aspire, is to ensure distributed production of blocks.
Almost 70% of all hashrate of the network can belong to only a few of the most popular pools; this applies to virtually any cryptocurrency, the complexity of which has already outgrown certain limits, that is, solo mining no longer brings any profit. As a result, pool owners influence network policy as a whole.
Myth number five. Only the owner of the crypto wallet has access to his funds
One of the features of cryptocurrencies is that no one can make any transactions with funds that do not belong to them. In most tokenized systems, this is due to the following scheme: each of the transactors should be able to allow the operation to be executed in a way that meets the requirements of the previous transactor. This implies the possession of the necessary private key and allows avoiding double transactions or theft.
As for the Ethereum, it has a full-fledged version of smart contracts. “Smart contract” is a program executed at the start of the transaction. In addition, it is the main “building material” for creating decentralized applications (dApps).
This technology has many advantages in terms of security and convenience, but there is a small nuance. Holders of digital wallets cannot be called full owners of the funds — they are kept by the contracts themselves, which is contrary to the original principles of cryptocurrency.
In theory, a contract that is running can do anything without the user’s permission. Of course, it is possible to check the correctness of the actions with open source software like blockchain explorers, but not everyone can do it. The solution is to create just one audit contract, but so far we have what we have.
Myth number six: Ethereum network cannot be manipulated
At the end of 2017, the online game CryptoKitties ate more than 13% of Ethereum’s traffic and received the title of “Etheum’s killer”. The popularity of the decentralized application was ensured by the simple and unusual functionality allowing users to breed various virtual kitties that give offspring. The more unique the offspring were, the bigger the award went to the owner. The characteristic was an infinite number, so each animal was different from the other.
What went wrong? Firstly, the great demand for crypto kitties increased the queue of waiting transactions, which had to be included in the block. At the same time, owners of animals who wanted to be the first to enter the block were forced to pay a large commission. This increased the cost of transactions for all network users and created a “traffic jam” with transactions.
The potential threat from such applications should not be underestimated. Developers fully control both the game and smart contracts. Cats are constantly growing in price and each contract can be frozen at any time. The owner can freeze the game and user accounts at any time, or modify the closed code.
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