RISKS OF BLOCKCHAIN
Is the Bitcoin Blockchain Network Really Safe?
The Dark Side of Blockchain — Why Blockchain Will Eventually Need Some Form of Central Authority and How This Could be Really Bad
The first section of the Bitcoin whitepaper ends with the following key sentence:
The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes.
Is this really safe? Can we trust that any ill-minded group of nodes will never win over 50% of CPU power?
As many of us know, the emergence of Bitcoin through the ‘whitepaper’ written by ‘Satoshi Nakamoto’ in 2008 shocked the world, as it opened us to a new system of network for financial transactions where a trusted third party is not needed. The basis of the idea is the ‘blockchain’ network. In short, blockchain emerged as a way to forego a trusted third party. The key point is that we don’t have to risk trusting a single powerful central authority to oversee all our transactions, but we, as individuals, can all participate as a community, to do the same.
The whole idea of blockchain is so ingenious, but let us take a look at how having a trusted third party in our current system may not be so bad after all. Then, let’s dive deeper into why even the blockchain network will eventually have to depend on some form of central authority, which could be much worse than the central authority we have in our current system.
The biggest problem of blockchain is that while the whole point is to put the role of a trusted central authority into the hands of individual participants as a whole, the majority of the human population that don’t have the necessary background to run their own nodes have no place in this network except to entrust their everything to those that do understand and actively participate.
In effect, for the majority of the population, this network is not of a decentralized democratic system like how blockchain is touted as, but a complete blackbox where the security of their entirety depends on the ability of anonymous tech geeks that run the nodes with their computing powers to remain ‘honest’ without losing 50%+ computing power to some ‘group of attacker nodes’ .
While I will base my ideas on the Bitcoin network, my ideas on the risks of such a decentralized network stretch to the concept of ‘blockchain’ as a whole. This may be quite a controvercial piece of article, but since most of the articles or papers on Bitcoin and the blockchain seem to focus on how great they are, I wanted to draw attention to the risks and the problems that the blockchain network may have. Before we use anything seriously, we should be aware of any risks associated with it. So, here we go!
It’s Simply a Tradeoff — Convenience vs. Not Having a Central Authority
Many things in life entail a trade-off, and so does Bitcoin.
While a trusted central authority may seem to have too much power, they provide much convenience to our everyday transactions. As long as we trust them and they meet our trust, we will be fine. Even in the case where they do commit actions that are fraudulent, we can trust the government as another central authority to step in to make things right for us. That’s easy to do so because the parties involved are clear and immediately identifiable. Moreoever, we don’t only have a single such third party, but a bunch of options that compete with one another — Bank of America, Chase, Wells Fargo, Visa, Mastercard, to name just a few. In other words, not only do third parties of financial transactions provide convenience, but also there are natural means of checks and balances that provide incentive for any one of them to not mess up, and we can also expect protection from the government in worst case scenarios.
However, in the case of the Bitcoin network where everything is left to the collaborative workings of the nodes in the network, even though it may seem unlikely that malicious groups can ever take over the majority, it is obviously not impossible, as we all know that the Bitcoin system is quite inconvenient (theoretical limit of 27 transactions per second and actual rate of around 5 as of this writing) and requires enormous and excessive amount of power to keep the network going. If at some point, too many people deem the system just too inconvenient and want to make it more convenient — in other words try to bring in some form of the ‘centrality’ aspect to this network — it will eventually end up becoming the very system its existence came about to address. The scary thing is that this is actually happening already, with the advent of the super nodes — group of nodes gathering around a bigger entity to make the whole process more convenient — and these entities are definitely more influential over the network compared to a single node run by a single person, although for now, any one of them is far from the majority. If any one such ‘group’ of nodes or a group of such groups gets big enough — that is 50%+ — the entire network is under the control of that all-powerful entity.
The problem is, we wouldn’t even know the exact identity of such entity. Furthermore, since there was no central authority involved with this system to begin with, the moment this majority holding group of nodes decides to doom the system, there isn’t practically anything the government can do while the world falls into an immediate panic. If any such powerful super node or groups of super nodes comes about, the transparency and openness of the public ledger doesn’t matter shit. The entire network is at the will of this almighty entity. If the almighty decides to make arbitrary transactions and confirm them through proof-of-work using its majority CPU power, your money will evaporate right in front of you, but there’s nothing you can do about it.
On a side note, just think about the absurdity of the idea where whoever has more CPU power has more influence over this network and whoever has 50%+ of the CPU power in the network becomes the almighty.
Private Keys & Hard Wallets — The Responsibility is All Yours
We should also consider other ‘inconveniences’ that arise from the fact that we don’t want a central figure or a trusted third party overseeing our transactions.
I believe one of the biggest inconvenience is the fact that you are fully responsible for keeping your private key secret. Whoever has access to your private key has full control over your wallet, and in order to prevent such situation from happening, the safest option for you is to have a hard wallet. WTF? Are you serious? A hard wallet? Not only that, you have to also make sure your wallet has essential security features that make it essentially an analog style device where remote hacking is infeasible. If you forget your private key or lose a copy of it, you are simply doomed.
Can this even be considered safe? The security of your money in your account being entirely dependent on a single private key?
What a ‘Central Authority’ Provides
Compare this to our current financial system where transactions are overseen by a trusted third party. If you forget your password to your account, or any form of authentication to access and manange your assets, you can always redeem your way back in by providing some form of proof of your identity. Even in the case where the third party’s system gets breached and your private information is leaked, the responsibility lies on that third party and you can rely on the government as a last resort to settle any disputes.
Do We Really Have to Distrust the Central Authority?
The sole reason for the existence of the over-engineered, overly inconvenient blockchain network is that we don’t want to trust a third party as is in our current system. But if we ever want to eventually overcome the inconvenience inherent in a system that foregoes a trusted central authority, some form of central figure will have to arise. It is simply a trade-off between enjoying convenience through a central authority vs. accepting inconvenience to forego a central authority.
But we need to remember, as human beings, in the end, we value convenience probably more than anything else in our daily lives. The amazing technological innovations we have been living through are the very results of humans trying to make things ‘more conveninent’.
When you trade Bitcoins and other cryptos by creating a wallet through any of the crypto exchanges, which I believe the majority of the people who don’t truly understand the whole idea do, you are essentially trusting the crypto exchange with everything related to your wallet. Again, the desire for convenience meets having a central authority, contradicting the very existence of the blockchain network!
How Bitcoin’s Public Ledger System Destroys Privacy for All
The ‘Privacy’ section of the Bitcoin whitepaper states the following:
The traditional banking model achieves a level of privacy by limiting access to information to the parties involved and the trusted third party.
The necessity to announce all transactions publicly precludes this method, but privacy can still be maintained by breaking the flow of information in another place: by keeping public keys anonymous.
Again, this idea seems great. That is, as long as your public key stays anonymous. The very moment your public key somehow becomes linked to your identity, from that point on, your entire past, present, and future transactions are no longer private. Just imagine your every single financial transaction being broadcast to the entire world and anyone on Earth can see what transactions you are making. This is absurd and essentially what the Bitcoin network is doing.
This is the final sentence of the ‘Privacy’ section:
The risk is that if the owner of a key is revealed, linking could reveal other transactions that belonged to the same owner.
Oops! That’s a pretty devastating risk!
Striking Similiarity to the Rise of Socialist Ideas
There is a striking similarity between the rise of the blockchain and the rise of socialist ideas.
We tend to lean more and more towards socialist ideas in a capitalist, democractic society, notably in the United States. The better a society becomes as a whole, the more the individuals start comparing their well-beings to that of the others.
In a capitalist democracy, the biggest problem seems to be the ever widening inequality amongst the population. The big tech and the super rich have unproportionately greater power and wealth, and those at the bottom of the pyramid is unhappy as they compare themselves to those at the top. Not only those at the bottom of the pyramid, but even those at the very top, who look at the handful who are even higher up. There is no end to comparing.
The Lure of Socialism & The Great Irony
Thus, socialism comes along, with its idea that everyone should be equal and should get the same share of the society’s wealth, attacking the capitalist democracy as an evil system in which the rich takes it all. According to Google dictionary, ‘socialism’ is defined as follows:
a political and economic theory of social organization which advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.
Socialism claims that the society as a whole should govern itself and that everyone should enjoy equal share of the society’s wealth.
But this is a complete bullshit. No such utopia can exist. No society can continue to exist without any form of a leader. So, if everyone is equal and to be distributed the same share, who does the distribution? That’s right, a dictator or a tiny group of political elites. Initially, the people may be excited and willing to collaboratively enjoy the society’s wealth together, actively participating in distributing amongst themselves. But as life goes on, people become tired of actively participating, and will start fighting over who is more worthy and who should get more share, because indeed, no human beings are the same and should not be treated the same as if they were animals. Eventually, the society would want a competent and worthy leader to do the distribution for them, creating what we know as a dictator. In the end, socialism inevitably gives rise to the most extreme form of inequality— the dictator vs. the rest — when in fact, the purpose (or the claims made by the proponents of socialism) was to address the problem of inequality prominent in a capitalist democracy.
What starts out as attractive socialist ideas eventually creates a communist society where a handful of elites controls everything. Because in the end, a society must have some form of leadership.
When everyone becomes dependent on receiving their ‘fair’ share, they become entirely dependent on the almighty that performs the role as the distributor.
The Sad Consequence of Trying to Create a Utopian Socialist Society Where Everyone is Equal
Look at communism around us— China, North Korea — to name just the most prominent examples. They exhibit the most extreme of the wealth and power gap, where no one within the country has true freedom to do what they desire except for the single dictator or the small group of political elites. Mao Zhedong established a country by advocating a country run by the people of labor, but ended up taking all the power himself and massacreing people who stood in his way. Look at Jack Ma, who went from the most powerful executive in China to a quiet citizen after a single instance of criticizing the government. If I had written this within China on a Chinese platform, this article would be taken off within seconds and I would be gone missing in a matter of minutes.
That’s the consequence of trying to make a society run by itself without a central authority, trying to make everyone equal. What you get is seeming ‘equality’ amongst most of the population, who in fact end up being completely controlled by the all-powerful few. The law doesn’t matter in such society. What the almighty says is the law.
There are Some Things That We Just Need to Accept
The huge wealth inequality of a capitalist democracy is indeed a problem, but a problem that a human society has to simply accept as something that can’t be solved entirely. Living in a human society, we simply can’t all be equal. The moment we accept that we should all be equal no matter what we do, we lose our identity as unique beings. If you look at life in absolute terms instead of keep comparing with someone else who seems to be better off than you, you will definitely be happier. If instead you try to solve that problem by bringing in socialist ideas, the end result is a complete opposite, where 99.99%+ of the population is equally helpless, unhappy, and completely controlled by the 0.01%-. But when you realize the old system — the democracy — was so much better and you would do anything to go back, there is no way of going back because your country and your life is now completely controlled by the all-powerful— there’s nothing you can do anymore, maybe unless God intervenes.
The fact is that in any society comprised of human beings, any form of central authority is essential for the society to be efficient. This fact leads to the corollary that the ideas of socialism are utopian bullshit. Just look back on the history of humanity. There was not a single case where a successful society didn’t eventually come to have a central authority.
So instead of just hating the big tech and the rich for just having too much power and being rich, why not appreciate the benefits they provide (which are mostly some form of convenience that make your life better e.g. Google search, iPhone, Amazon.com, etc.), consider why they may have become so influential, and think about ways you might also provide benefits to the world? Your happiness depends on how you think. You can have all the power and all the money in the world and still be unhappy, if you are just full of contempt.
There is No Such Thing as Complete Privacy in the World of Internet
Let’s face it. The very fact that we sign up to use and be a part of some website or service means we are trusting the entity we are signing up for with the information we give them. If you want complete privacy, just don’t use the internet and don’t interact with anyone. What’s more, when you sign up for many of the services, you are required to agree on various terms, including those relating to the privacy of your information. How many of us actually read these documents and not sign up if we disagree with the terms? Again, a concrete example of how much people dislike inconvenience.
So then why do we attack Facebook, Google, the big banks, etc. when it comes to our privacy and why not some new smaller website that may also require our personal information to sign up? Simply because they are huge and seem to be too powerful. In fact when it comes to privacy and security, the big techs and the big firms have much better technological capacity to fend off attackers; not so much for less powerful, smaller services. But you might say, because they are so powerful, can we trust them with such power? Let’s take a look at one of the ideas of the Bitcoin network.
The ‘Incentive’ section of the Bitcoin whitepaper states the following:
The incentive may help encourage nodes to stay honest. If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth.
I believe the same incentive applies to the big techs and the big banks, but with much greater likelihood than that for the ‘greedy attacker’ in the Bitcoin network because the big techs and the big banks are not a monopoly, but in constant fierce competition with one another. If any of them decide to mess with the power they have, they will be screwed by the collective power of the angry users, their competition, and the regulatory actions by the government. Simply look back on how many huge corporations have come and gone.
In the case of the ‘greedy attacker’ of the Bitcoin network, I’m not so sure of the strength of such incentive since you just don’t know ‘who’ the ‘greedy attacker’ may be. What if it is the North Korean regime deciding to simply screw everyone to create panic?
Back to the Idea of Bitcoin as a Decentralized Network
Coming back to the discussion on Bitcoin and its peer-to-peer network designed to forego a central authority, it’s very sad to see that human beings have become so untrusting so as to attack a trusted central authority as ‘too powerful’ and ‘not trustable’. I feel such thinking arises from the fact that we are simply unhappy with someone else becoming richer and better off and having a lot of power.
Because you can’t trust Visa or Mastercard, Bank of America or Chase, any of the Big Tech — Google, Apple, Facebook , etc.— would you trust Bernie instead? Warren? AOC? Have these socialists actually done anything to better our world as the big techs have done? To me, they just seem to be filled with hate and want to feel important by arousing people with populist socialist ideas. Would you depend all your financial transactions entirely on a system created by some anonymous individual named Satoshi Nakamoto claiming to make ‘safe’ direct transactions possible without any trusted central authority by the collective workings of 50%+ ‘honest’ nodes? What if 50%+ of the nodes somehow become not ‘honest’ any more, as in a new all-powerful central figure that initially didn’t seem malicious at all but has eventually gained the majority of the network’s computing power by manipulating the inconvenience of the system and the naiive trust by the participants that a group of attacker nodes gaining a majority of the computing power is not likely? This could be a truly serious black swan event, which, if it does occur, is a complete doom for all.
Conclusion
That is why Bitcoin, or any other cryptocurrency claiming to run on a decentralized network, in my view, will never, and should never, replace the centrally governed currency system. One of the most important aspects of money is the aspect of sovereignty. A decentralized financial network, despite its ingenuity and brilliance in overcoming the need to have a trusted third party, simply cannot replace a centralized system that, despite all the problems and potential risks of requiring a central authority, provides not only great convenience to all, but a sense of protection that in the worst case, we can depend on the system as a whole to make things right for us.
