Centralization Problems for Ethereum
Ethereum is the technology behind the Internet 3.0, an internet of value where value can be exchanged as quickly as information online. It’s accolades are many, but is it too centralized? While most cryptocurrencies are still in the speculative and theoretical stages, Ethereum is already running hundreds of functional use cases over its network. More than a currency, it’s a hub for decentralized applications and new ERC-20 tokens. It’s the second highest market cap coin poised to overtake Bitcoin, and its starting to get the regular news press coverage of Bitcoin.
For all its demonstrated strengths, Ethereum is tightly controlled by one person and its smart contracts could irreversibly carry out potentially malicious processes. Why is Ethereum criticized as overly centralized, and could its centralization be a problem for the emerging digital economy?
Ethereum is Too Centralized Claim #1: “Vitalik Buterin has too much power”
The Chain of Command
Vitalik Buterin, often called the Benevolent Dictator of Ethereum wields a great deal of power over Ethereum’s future. As the creator of Ethereum and its figurehead, he is considered by some to be an essential lynchpin to running it smoothly. He’s proved himself as a competent leader and shares decision-making with the Ethereum Foundation. Does this also make him a fault point for Ethereum or its fulcrum? Critics are quick to point out the several times Buterin has sold his stores of Ethereum since creating the platform. While he’s made statements that he plans to step down in the future, there are no guarantees.
Having such a prominent leader makes Ethereum centralized in leadership, it’s also what has allowed it successful adaptability in a quickly changing environment. Buterin forms and carries out the vision for Ethereum. From authoring the white paper, to Tweeting on Ethereum’s direction, to making decisions on zk-Snarks, Raiden, and Plasma, he leads Ethereum. Right now, scalability is what’s holding back blockchains from a wider adoption. Having an organized leadership is what’s allowed the Ethereum Foundation to exist, and the Ethereum Foundation is pouring money into grants for a scalability solution on its blockchain. The proactive approach here wouldn’t be possible without an organized group of people committed to a long-term vision acting with tangible steps towards its success.
One very visible and competent voice does not mean the entire Ethereum network is vulnerable to a bad choice by Buterin. He is one of many within a talented team at the Ethereum Foundation, and their monthly meetings are broadcast to the public for all to see.
Ethereum is Too Centralized Claim #2: “Once initiated, a dangerous Dapp could wreak havoc”
Potential Problems with Smart Contracts
Smart contracts are what make Ethereum so popular, and they’re incredibly easy to launch on Ethereum. Even though Buterin wasn’t the first one with the idea for a smart contract, Ethereum is the first functioning smart contract platform. Ethereum is an empire of hundreds of decentralized applications running on its blockchain, but while smart contracts bring revolution, they could create huge problems.
There are currently 1,152 Dapps running on the Ethereum blockchain and 91 of the top 100 tokens are running on Ethereum. With Dapps being created in for health, finance, social, government, and other purposes, hundreds of scripts are being carried out by public nodes over the Ethereum blockchain. The Ethereum Virtual Machine (EVM) is executing these smart contracts or scripts over its public nodes. The problem comes when there’s an anomaly thrown into this well functioning system.
Smart contracts are immutable, meaning there’s no way to stop it from carrying out its task once the script begins. A “rogue script” might be an all around “evil Dapp” or it might just be a coding error that accidentally scrambles accounts or exposes private data. One bad script could cause a dangerous breach of data or worse. Large amounts of people are working to find these types of “rogue scripts” and fix them.
Every Dapp on Ethereum must follow its protocol for building decentralized applications. The protocol requires a Dapp:
1. Be completely open-sourced (allowing others to look at the code)
2. Keep data and records cryptographically stored
3. Use a cryptographic token (meaning have a token sale – putting the Dapp in front of even more eyes to keep out a malevolent app)
4. Generate tokens (by parsing its value amongst token holders the Dapp owner has some incentive to play nice)
The number of Dapps released on Ethereum’s platform is a strong indicator of its market prominence. Creative minds are flocking to it because it’s easy to write and launch Dapps on Ethereum. Some critics point out a number of these projects are copy and pasted code with no actual practical applications to back them up. On the other hand, the foundations of cryptocurrency growth are built on copy pasting to create new concepts quickly. To illustrate, Litecoin began as a copy paste of Bitcoin.
Many people have criticized the massive amounts of poor quality projects going to ICO as ERC-20s bound to the Ethereum blockchain. They say it’s centralizing money into Ethereum and it’s diluting the content. While 99.9% of these tokens will likely fail or be replaced by something better, it only takes a small amount of successful Dapps to prove Ethereum’s success. The dot com bubble is an excellent support, almost every single business failed, but the result is an innovative breeding ground that created the modern internet. This is a breeding ground for ideas, and the strong 0.01% will emerge from the ashes.
Ethereum is Too Centralized Claim #3: “Third Parties and Oracles make Dapps Vulnerable”
Smart Contract Vulnerabilities to Centralization
Smart contracts need reliable data to carry out their programming. Carrying out a mortgage, for example where “I’ll send you the deed to the property when you sign off on the inspection and put your payment into escrow” would need a third party to make sure we both meet their end of the bargain. The need for a third party or oracle to validate smart contracts is the biggest argument about it’s centralization. This is a limitation of smart contracts as they exist today, and it means we have to pick trustworthy third parties in these situations.
Having central leadership isn’t a problem, but having third party control over Dapps could be. Ethereum’s widely used platform is running hundreds of practical uses while other cryptocurrencies are still in the stage of promising what they’ll do. It’s tight central leadership through Vitalik Buterin has been a big part of its success. While lots of power in the hands of a few does make it vulnerable to bad executive decisions, it doesn’t make Ethereum as a platform centralized. The big questions surround third party and oracle control over Dapps. This isn’t an issue exclusive to Ethereum, but it’s one it faces now as the first functioning Dapp platform. Ethereum is rising and may overtake Bitcoin as the highest market cap coin in 2018, but it still has work to do on its Dapps.