It’s been already quite some time since Daniel Larimer talked about decentralizing Bitcoin. He’s working on a new algorithm capable of achieving this because Bitcoin is not so decentralized as people would think. And it is not even void of the governance issues as many claims it possesses. Not only is it expensive to transact with, but its slowness also prevents it from being used as an efficient payment method for day-to-day transactions.
While the popular belief is that EOS is centralized in the hands of 21 Block Producers, the reality is that those 21 BPs are voted in by all the token holders. The token holders stake their tokens and vote constantly on a maximum of 30 BPs chosen from hundreds of candidates.
Bitcoin, in comparison, is being controlled by the hash power of 2-3 mining pools where the ASIC cartels have near-total control over distribution rights to hashing power for a cryptocurrency. This process of mining is more centralized because it is dependent on one technology solution.
Attempts have been made by many cryptocurrency developers to fork their currencies in order to limit the usefulness of particular ASICs. However, companies like Bitmain have enough capital to continue developing hardware, allowing for more efficient and more profitable mining and staying ahead of changes. A report claims that 85% of Monero is dominated by ASIC miners.
Blockchain governance talk has been widely covered in the past few months. Most recently EOS and Ethereum led open talks about exploring new ideas and leveraging community participation. “Bitcoin governance” is not something that can be heard of, but when they speak about protocol upgrade, this is when we see governance in action. Github admins, exchange connections, and mining pool operators are the ones who decide on the changes and while they call EOS’ transparent governance chaotical, Bitcoin’s hidden decision-makers are far less accountable.
So if Bitcoin is more centralized than we expected, it is missing it’s the point. If something is reclaiming the right to become a global currency then it should resist all kind of censorship. A global currency cannot fail due to some national crisis, technology hack, or even a combined censorship effort by several nations.
But how can we know if something is decentralized “enough”? In order to measure it, some stress-test should be adopted. Unfortunately, it doesn’t seem so easy, but answering some questions could give a general idea of decentralization.
“How many innocent people would you have to hold ransom to get #bitcoin or #eth miners to reverse a transaction? Would miners and mining pool operators be subject to class action lawsuits if people died because they mined?”
“How many people would you have to hold hostage to censor all transactions on your “decentralized” chain? How long would it take to recover?”
“Imagine a trolly that will run over 20 people unless miners devote hash power to a switch which will change tracks. Will the 20 people be saved or will miners choose to mine bitcoin instead”
Larimer goes as far as saying: “I could take down btc and eth for quite a while with just 3 pool operators” but “that would be illegal”
If there is even a slight risk that the network could be stopped by taking some hard actions, then this means that the network is not decentralized enough. The speculations surrounding the possibility of a 51% attack or network overtake by a state actor are all possible because of the low level of decentralized hash power.
Only when the network has truly decentralized, all attempts to censor it will be in vain.
On the other side, the Lightning Network is not a perfect solution for which it was created. It allows the creation of “intermediaries that are vulnerable to censorship attacks by mining pools and ASIC cartels” writes the EOSIO developer.
Bitcoin is also very expensive to transact with when it comes to day-to-day payments. 1800 bitcoin is paid to miners each day in order to process 360K transactions. This daily inflation is going to double at each price doubling and these Bitcoin costs are being socialized between token holders.
Dan Larimer’s solution to Bitcoin sins
Although very critical, Daniel Larimer is far from attacking without providing a solution. In fact, he’s actively involved in developing an algorithm that will not only decentralize Bitcoin but will let everyone mine. He admitted that he contributed to the Bitcoin Core development by patching some memory leaks and now he wants to improve Bitcoin even further, only this time with the help of EOSIO.
It is yet a big unknown how exactly the new consensus mechanism will work, but Blockstack developer Jude Nelson has recently spoken about their work on a hybrid POW/POB in their blockchain. Proof of Burn will be used as a way of securing the network by burning Proof of Work generated bitcoins instead of expending electric energy and hardware.
Every participant of the network competing for the opportunity to sign the next block will need to burn a certain amount of coins to enter the competition. This means there will be an economic cost just like in POW Bitcoin. Those who get to sign the block will collect transaction fees and earn the block rewards. A randomizer will be used to pick the winner and the assumption is that those with more bitcoin will have more probability to win the competition.
Although the idea is interesting, the risk of centralization in the hands of those with bigger pockets could be the problem in the long run.
Blockstack’s hybrid POW/POB mechanism of consensus doesn’t seem to be the one Daniel is thinking of. It assumes that those with a bigger amount of tokens, aka a larger piece of the pie, will have more probability of signing the blocks, which is not what the creator of EOSIO wants.
What if Daniel Larimer will help with Bitcoin’s censorship resistance? View image on Twitter
If there is a man who can make it real, then this man is Daniel Larimer. He is the inventor of the first stablecoin, DAC, Delegated Proof of Stake algorithm, and the creator of the three most used blockchains Bitshares, Steem, and EOS.
Also, Brendan Blumer, the CEO of Block.one, likes the idea of Bitcoin flowing onto EOS:
For now, we can only speculate what the better Bitcoin will look like. The big Block.one event on June 1st could unveil some interesting scenarios and bring some surprises. After all, “B1 is coming in June” so it must be special. View image on Twitter