Cryptocurrency seems to be selling out. Bitcoin and other digital currencies were designed to circumvent the centralised control of big banks and instead be managed by its network. But now they are growing similar to the very institutions they鈥檙e trying to sidestep.
Decentralisation is key to cryptocurrencies, because there is no Federal Reserve or European Central Bank to lend legitimacy to the cause. Instead, decentralised networks authenticate transactions so no individual user has the power to manipulate the process, but everyone has the power to check it.
However, at Cornell University in New York and his colleagues monitored the bitcoin and ethereum networks from 2015 to 2017 to see how decentralisation was faring. 鈥淭here is a lot of noise made about decentralisation, and then when you look at it, it鈥檚 not all that decentralised,鈥� Sirer says. On top of this, bitcoin has halved in value since last month, with other cryptocurrencies having similar declines.
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In the bitcoin system, the top four miners control more than half of the computational power, called the 鈥渉ash share鈥�, of the bitcoin network. With ethereum, a well-established cryptocurrency that uses smart online contracts, more than 60 per cent of the computational power is controlled by only three miners. These may be individual miners or 鈥渕ining pools鈥�, in which a group of people share their processing power.
Gaming the system
This is dangerous, because any person or group with a hash share of 51 per cent or more could potentially game the system by either censoring other users鈥� bitcoin transactions 鈥� making sure that they can鈥檛 send or receive currency 鈥� or by double-spending their own coins, according to at the University of Cambridge. They could purchase two items from two different individuals with the same coin, he says, and only later would one of the individuals realise they鈥檇 been had.
The effective result is basically a centralised currency, but controlled by anonymous strangers instead of the government. 鈥淚f it turns out that just five people can take over the coin and censor transactions, then I would want to know who those people are and be on good terms with them because they could basically freeze my coins,鈥� says Sirer.
罢丑别谤别鈥檚 no practical way to protect against this sort of attack 鈥� the possibility for it is built into the system. 鈥淭he mitigation would have to occur after the attack 鈥� there鈥檚 nothing that could be introduced to prevent it,鈥� says Hileman.
Being centralised might not mean the end of the cryptocurrency vision, though. 鈥淚 would argue that the decentralisation dream is not dying. It鈥檚 actually growing, because bitcoin is no longer the only game in town,鈥� says Hileman. 鈥淲ith the proliferation of other cryptocurrencies, there is a significant increase in variety and options and innovation across the crypto-universe as a whole.鈥�
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Read more: 2018 preview: Bitcoin and ICO bubbles are set to burst
