Is Decentralization In Blockchain a Scam?

Since its release 15 years ago, Nakamoto's white paper sparked debate on achieving decentralization, with no definitive answer yet.

Many have argued that blockchain would soon have its first 51% consensus, thereby taking over the blockchain.

The question becomes, is this even possible?

We must go back to the basics to answer the question and see what consensus is about.

Consensus Mechanisms in Blockchain

Consensus refers to how nodes or participants in a decentralized blockchain network can agree on the ledger's state. Since no central party coordinates transactions, blockchain networks need consensus models for distributed validation. The earliest and most well-known consensus protocol is called proof-of-work (PoW).

In PoW, miners compete to solve cryptographic hash puzzles that require significant computational power.

The first miner to find the solution for each block is rewarded with newly minted coins. The hash puzzle is challenging to solve but easy for others to verify.

This process commits transactions to the blockchain in an immutable manner. Bitcoin and Ethereum operate on PoW consensus, but it has drawbacks like energy consumption.

Alternative consensus models have emerged to improve on PoW. Proof-of-stake (PoS) is a model where participants stake their coins to become validators of transactions.

The protocol randomly selects a validator to add the following block, and the chance is proportional to the amount staked. Ethereum 2.0 was created on the PoS mechanism, which is far more energy-efficient.

Delegated proof-of-stake (DPoS) involves selecting a fixed set of validators based on voting. DPoS can process faster transactions.

There are also consensus models like proof-of-authority, proof-of-coverage, and proof-of-burn, among others. Each offers a slightly different take on achieving distributed agreement.

The key innovation is that consensus removes the dependency on central banks, governments, or companies to facilitate transactions. Decentralized consensus builds trust by aligning network incentives.

Let's look at what Nakamoto aimed at when he wrote about decentralization and what we have today.

Decentralization in Web3

Alongside decentralizing finance, blockchain enables the creation of web3 - the next evolution of the internet. In contrast to traditional web2 models that consolidated power into large tech platforms, web3 uses principles of decentralization to hand control back to users.

Applications are built on open protocols; tokens align incentives through ownership, decentralized autonomous organizations (DAOs) enable collective governance, and decentralized storage removes central points of failure.

A key technology empowering web3 is decentralized storage and content management systems like IPFS, Filecoin, Arweave, and others.

They allow data to persist distributed rather than relying on centralized servers. With blockchain domain naming systems like ENS, web3 enables decentralized websites and applications.

Tokens and crypto wallets give users ownership within web3 ecosystems. NFTs tokenize unique digital items so users can directly own and trade them.

Tokens also allow decentralized governance of protocols through voting rights. DAOs take this further by establishing rules and infrastructure for entire organizations and communities to be governed and decentralized.

Benefits of Decentralized Consensus and Web3

The decentralization enabled by blockchain consensus and web3 models brings meaningful benefits, including:

Censorship Resistance: Content, transactions, and applications are stored and processed in a distributed manner. There is no central party that can block or delete them. Censorship by single entities is rigid.

Transparency: On public blockchains, all transactions are viewable to participants. It creates transparency and accountability since actions are permanently recorded on-chain.

Trust Minimization: Consensus protocols allow mutually distrusting actors in a network to agree on the state and the ordering of transactions without intermediaries. It builds trust between participants through code rather than third parties.

Resilience: Decentralized networks have no single point of control or failure. Temporary outages or attacks on network nodes can be overcome if most remain operational.

Access and Financial Inclusion: Anyone with an internet connection can directly participate in consensus and transactions without permission. Geographic and institutional barriers are reduced.

Ownership and Control: Users own digital assets, data, and identities directly. Reliance on rent-seeking platforms is reduced in favor of user-owned networks.

My thought -----

While decentralization unlocks new possibilities, there are also meaningful technical and regulatory challenges that people are unaware of.

A survey by Dune shows that more than 31% is staked with Lido Finance, making it far and away the most popular staking solution on the market.

Source: Hildobby, October 2023.

If Lido could expand its staked ETH to over 51% of the total stake, it could theoretically control consensus and block production.

According to the Eth 2.0 model, The protocol randomly selects a validator to add the next block, and the chance is proportional to the amount staked.

While all of these raise questions, the future is no longer in doubt that a need to rival such great power and give back the power to the people has become a critical concern, one taken lightly would cause the final collapse of Web3.

Shamirslabs Diva Pool allows regular users to participate in Ethereum consensus as a validator with a very low ETH stake. It makes decentralized ETH validation accessible to almost anyone. There is no fixed minimum stake like the 32 ETH required for solo staking.

Conclusion

Why the world embraces this shift towards open, decentralized models will shape the future; however, everyone must play a role in the future of consensus lies in the hands of the people and not some corporation spinning the wheels from behind the scenes.

While many questions remain unanswered, the future of money has come, and I believe like a mountain, we are just about to climb.

The top awaits.

If you find this article thrilling, discover extra thrilling posts like this on Learnhub Blog; we write a lot of tech-related topics from Cloud computing to Frontend Dev, Cybersecurity, AI, and Blockchain. Take a look at How to Build Offline Web Applications.