Decentralization is the holy grail of blockchain buzzwords.
Although it is endlessly touted by crypto advocates far and wide, another hack on the weekend unveiled a not-so-decentralized reality, reviving the industry’s oldest debate.
What does decentralization really mean?
“We are using the word for adoption rather than actual decentralization,” says Sergey Nazarov, the co-founder of the decentralized oracle network Chainlink.
For Nazarov, who alluded to the collapse of Celsius, Voyager, FTX, and most recently Mixin Network as examples of a “decentralization theater,” the buzzword is mostly being used “to attract capital.”
Chainlink’s co-founder told Decrypt he sees only a handful of projects as meaningfully decentralized, naming only Chainlink, Bitcoin, and Ethereum.
The latter, it’s important to point out, is going through its own set of centralization problems, with the so-called Lido Finance cartel posing an existential threat to the network.
For Nazarov, though, decentralization is a “security mechanism.”
He pointed to Chainlink’s four-year record without hacks, “while transferring $8.5 trillion in value,” as a case in point. “Systems that are decentralized remain secure,” he said.
Chainlink has not been exempt from its own criticism regarding centralization, however. The price oracle has a 4-of-9 multi-signature access that could have unforeseen–and undesired–effects in the DeFi space.
DeFi security expert Chris Blec spoke to Decrypt about his mounting concerns regarding the multi-sig.
For him, the issue isn’t necessarily the number of signers, but rather that the administrative access exists, and that the industry doesn’t know who operates them.
“The fact that these signers can ‘nuke’ the price of Ethereum is a problem,” he said. And Blec pointed to the large number of DeFi protocols currently using Chainlink’s price feeds which could also see issues were the multi-sig to be compromised.
Matías Barrios, a security researcher for Solana, thinks the issue isn’t necessarily the multi-sig, but rather key management. “You can have a 19/20 but if the keys aren’t well managed, it won’t be more secure than a 2/9,” he said.
Even so, Blec places the emphasis on what he calls a lack of transparency. “People need to be aware of the risks,” he explained, especially those who put their life savings into the DeFi protocols feeding off Chainlink’s feeds.
All that said, the DeFi security expert did claim that “Nobody has figured out how to feed prices without a centralized mechanism,” not naming any competitors that might be working towards that goal.
He also referred to the recently launched Chainlink Cross-chain Protocol (CCIP), as getting closer to achieving decentralization, although there is much work to be done.
Decentralization: Apples and oranges
Decentralization, however, expands beyond security. For others, it can even take on a more democratic hue.
Matías Barrios, a security researcher for Solana, told Decrypt, that the concept is “the ability a system has to distribute voting power.” For him, voting power can also mean “execution,” in that no one person has the capability of censoring or allowing changes to occur.
That said, Barrios pointed to a reality that is sometimes easily overlooked: “Decentralization is a spectrum.”
“I am a massive believer in the decentralized spectrum idea,” agrees Nazarov. However, he pointed to many chains as “masquerading” their decentralized reality.
One such protocol, countering Nazarov’s decentralization tag, is Ethereum. It has come under fire of late, due to the outsized footprint of Lido Finance and its staking pools.
Danny Ryan, an Ethereum Foundation member, addressed these concerns and didn’t hold back.
Ryan explained that Lido is short-circuiting the economics of the network by “Shoving a governance token owned by a bunch of VCs into the center of the protocol.”
He expanded on the presence of VCs in crypto, and how these pose systemic threats to overall decentralization. “The majority of token distributions these days are VC owned,” he claimed, characterizing them as “Shitty re-instantiations of corporations on chain.”
Blec echoed these sentiments, and tacks on the outsized footprint that stablecoins have on the protocol. “Any fork will be at the mercy of these products,” he thinks, adding that if they don’t approve, the network could implode.
If Ethereum goes through these types of threats, what’s left for the rest of the industry?
For Nazarov, there are two ways to address the issues surrounding decentralization.
First, “we need to end the buzzword cycle,” and focus on building systems that offer proper security and reliability.
That’s mainly for builders and companies in the space, however.
Chainlink’s co-founder reckons there is a responsibility on the individual as well. “We need to become more educated consumers,” he said.
As the crypto industry continues to battle the ongoing bear market, the decentralization debate is more alive than ever.
Whether it is a means to better security systems or more democratic governance, is up for each individual, or entity, to discern.
What is for sure, however, is that crypto seems to be falling short of its number one goal.