As explained in a blog post by Qtum (QTUM), decentralization is the process by which the “governance activities of an organization are distributed or delegated away from a centralized body.”
As noted by Qtum, the term “cypherpunk” was introduced back in 1980 by writer Bruce Bethke. As mentioned in the blog post, cypherpunk is an individual that “believes that the path to societal and political change lies in the use of strong cryptography and privacy-enhancing technologies.”
In particular, the cypherpunks have been “against censorship and monitoring from the government and police,” the team at Qtum explains.
In his CypherPunk Manifesto of 1993, Eric Hughes had noted that “if privacy is given from a stronger body to a weaker subject, it is no longer an inviolable right. It is something that is merely given and is, therefore, something that can be taken back.”
This is why the cypherpunk movement was “a major proponent of using anonymous and decentralized currency systems free from state interference,” the Qtum team added.
Before Bitcoin (BTC), there were several iterations of virtual currencies, the update confirmed while adding that the truly significant ones were Wei Dai’s B-Money, Nick Szabo’s Bit Gold, and Hashcash. But none of these initiatives solved one of the “core principles of a decentralized ecosystem,” the blog post explained.
For instance, how can we ensure that the system will “work accurately even if many nodes in the network turn malicious or perform sub-optimally?”
This problem is referred to as the “Byzantine Generals’ Problem.”
“An army has surrounded the enemy’s castle. The castle is very well-fortified, and it will require a coordinated attack from the army to take it down. However, some of the generals are corrupt. They plan on retreating instead of attacking to make sure that the castle defeats the army. Now, how will the army make sure that it succeeds in attacking despite these malicious elements?”
This is the Byzantine Generals’ Problem. In a decentralized currency network, “not solving this problem could lead to an event known as “double-spending.” Double-spending is “a flaw in a digital cash system wherein the same token can be spent more than once,” the blog noted.
So, how did Satoshi Nakamoto solve this problem for Bitcoin? The answer… proof-of-work, the Qtum team notes.
Proof-of-Work And The Road To Decentralization
Proof-of-Work (PoW) is “a class of consensus algorithms called ‘Nakamoto Consensus.'”
The core principle behind Nakamoto Consensus is this — participants “should lose something of value if they choose to act against the system’s interest,” the team at Qtum explains.
In order to understand this, let’s see how PoW, also called mining, works.
- People from all over the world can be miners as long as they have the proper mining equipment or are part of a pool.
- The miners use their computing resources to solve cryptographically challenging puzzles continuously.
- The moment a miner successfully solves the puzzle, they get to add their block to the blockchain.
The main thing to note here is that “solving these puzzles is extremely work-intensive and requires a lot of resource wastage,” Qtum added. Now, if a malicious miner plans to mine their blocks and fork the chain, they will “need to waste a lot of resources, which could be out of their financial means,” the blog post noted.
As such, the Nakamoto consensus mechanism “ensures that a decentralized system works in a decentralized manner without depending on the goodwill of the participants,” the Qtum team noted.
The “Shortcomings” Of PoW
Although PoW is really secure and field-tested, its main shortcoming is that it “prioritizes liveness and security over speed.”
According to Qtum, this is fine if you are “operating a small network.” But if you are changing the paradigm of the global economic system, “it’s not quite good enough.” The fact that Bitcoin can do just 7–10 transactions per second and Ethereum can do only 15–25 “isn’t good enough for a global monetary system,” the blog post noted.
The Qtum team added:
“In 2017, during the ICO craze, scalability became all the rage. During that time we saw the rise of several projects, who preferred to prioritize speed by centralizing their blockchain.”
The “core mechanism behind their consensus algorithms” looked something like this:
- Instead of the entire network participating in the consensus, the network chooses/elects certain leaders or delegates.
- These delegates are responsible for the consensus process.
- Since the number of nodes involved in consensus is lower, it’s much faster than the traditional Nakamoto consensus. However, we have a major centralization issue with this approach.
The Centralization Problems With Modern Chains
The Litmus Test: Is Your Chain Centralized?
- Test #1: Few nodes have too much power: Is your protocol using a consensus mechanism that prefers speed to centralization? “If the number of delegates is too small, it will be possible for them to form a cabal and act in their own personal interest.”
- Test #2: Do newcomers have any chance of making a significant impact? Have the early investors in your protocol accumulated so many coins that they have an unfair advantage over newcomers? For example, “are newcomers excluded from validating transactions because no one voted for you or because you don’t own any coins? This could be highly problematic since early investors will always vote for newer proposals and general governance.”
- Test #3: How much power does the core team have? Is the core team still capable of executing major protocol decisions? Can they seemingly switch the protocol on and off on a whim? “If yes, then your network is still centralized.”
What Do You Prefer? Speed Or Decentralization?
As noted by Qtum, more centralized consensus algorithms do have “very attractive stats.”
Who wouldn’t want to run a network which can do hundreds and thousands of transactions per second? But increasing speed, modern systems have “compromised their decentralization,” the blog post explained.
In that case, can you really “call yourself a decentralized payment system if you are willing to sacrifice one of its core tenets?” If speed is the only criterion, then “the Visa network is very fast, but with significant centralization baggage,” the Qtum team writes in their blog post.
As noted in the blog, Qtum, Ethereum, Bitcoin are “some of the handful of protocols that are still fully decentralized.”
As mentioned in the blog post:
“Qtum’s unique ability to adjust blockchain parameters without a hard fork allows scaling to take place as the situation requires. For example, the native blockchain is capable of handling up to ~1100 transactions per second. Segregated Witness can theoretically expand this by 60%, bringing the native total to around 1600.”
“This is a tad deceiving, as every transaction would have to make use of SegWit, but it’s possible. At the time of this writing, it’s about USD $0.06 to send a Qtum transaction, so it’s not likely to get out of hand to the point where transactions cost hundreds of dollars anytime soon.”
If this were to occur, Qtum has implemented “Lightning Network”, a second layer scaling solution, the developers confirmed.
Their website states:
“Scalability. Capable of millions to billions of transactions per second across the network. Capacity blows away legacy payment rails by many orders of magnitude. Attaching payment per action/click is now possible without custodians.” Lightning Network”
Although our implementation of Lightning might not be as established as Bitcoin’s, the foundation is there if needed, Qtum noted.
“Centralization of a blockchain is simply not required in order to achieve a high throughput. Projects can retain censorship resistance and community governance in a trustless state while providing the speed necessary to build the future of finance.”