Ethereum is not a decentralized trust-minimized blockchain at all.
It’s a simple fact Ethereum supply is mostly centrally printed (premined) by a single trusted party: link, link.
It’s a simple fact blockchains are controlled by the economic majority’s effect on the markets (link, link, link, link), which by design of using a premine depends almost entirely on a single trusted party.
Since it’s not obvious to some, let’s expand on that:
It’s a simple fact Proof of Work miner participation is driven by incentives.
- Profit from distribution accessible to anyone without permission (permissionless is the best tool for entry of independent interests)
- Cover the recent sunk costs of aging equipment (by selling most coins to others and increasing decentralization)
- Cover the electric costs of running the equipment (by selling most coins to others and increasing decentralization)
- Most efficient equipment is most profitable which incentivises buying new equipment
- Have incentive to mine and secure the most profitable fork or chain (hashrate tends to follow price and mining profitability)
- Determine security and liveness of individual forks or chains (low value of incentives to mine can kill off a chain by being unable to solve current difficulty or make the blockchain very cheap to attack)
Nothing is more important to miners than the total market value of the coins they are paid as incentives. What controls the market value of each chain’s coins? Buyers and sellers. Large coin holders can suppress the price and, thus, security of blockchains, scare off potential buyers, and drive other holders to abandon their coins to avoid value loss. Who are the coin holders? It’s determined by the distribution method used.
It’s a simple fact that distribution via an ICO of a premine is indistinguishable from a premine and depends entirely on just 1 trusted party:
- Completely free access to premine and ICO profits is limited only to a single self-appointed permissioned party
- Only the single self-appointed permissioned trusted party gets to profit from the ICO
- Only the single self-appointed permissioned trusted party is allowed to “buy” into the ICO for free while still getting funding from others
- ICO design has a built in incentive for a single trusted party to cheat for any percentage of premined coins at no cost (link)
- None of this is easily verifiable thanks to pseudo-anonymity of addresses for purchases or distribution. Thus, the design and allocation of control in Ethereum forever relies on trust in a single trusted party’s unknown behavior to have refused to use their free money backdoor.
It’s a simple fact the coins in the supply distribution and coins used for incentives are from the same supply priced by the same markets.
It’s a simple fact that purchasing power of coins on each chain (and, therefore, incentives) is decided by the market value of those coins being traded. Economic majority control over incentives on each chain gives a direct connection between controls of the supply distribution and controls of incentives and blockchains.
This means the value of incentives on each chain including forks is decided by the owners of the existing supply on each chain or fork. The incentives include purchasing power of awarded rewards from producing blocks for miners. For coin stake holders on each fork, expecting increasing stake value creates incentives to purchase or hold coins, and expecting decreasing stake value creates incentives to avoid buying and selling coins. The importance of market value of coins is also shown by refusal of mining pools to collude to 51% attack their own chains by hurting their ability to recoup hardware losses and incentivising honest behavior. A large stake holder on each chain can attack or even simply signal intent to attack the current and future value of incentives by selling coins on markets to affect its price and, therefore, to control incentivised behavior. Since exchanges are generally opaque and coin ownership is unknown (outside of the size of the premine by the trusted party), the scale and duration of a potential attack is an unknown continuous risk to third parties.
Ethereum uses a block chain design that relies on trust in a single permissioned trusted party in charge of what happens to super-majority premine that could control value of incentives, security, and liveness of each chain after each fork. Dependence on 1 trusted party is not at all trust minimized or decentralized.
If we were to draw out the trust flow model diagram to show priority of control, it would clearly show how the entire design literally depends on actions of 1 party that nobody else can do anything about:
Intent and signal of what the economic majority supports was made very clear:
Some of the attack on the undesired by them chain via markets was also interestingly observed in the hacking team efforts, selling the premine, and even keeping replay protection out to cause unaware user losses (link, link, link). These public signals are an even easier way to amplify the effect over the opaque markets to the central advantage to decentivize buyers and owners from supporting the undesired chain.
It’s a simple fact that decentralization (trust minimization) is exact opposite of trust in a single trusted permissioned party.
The entire point of 2009 Satoshi’s invention of Proof of Work blockchain was to distribute control including the supply to everyone without a need for a trusted party. The design allowed anybody seeking the incentive of profit to compete for virtually all fractions of the supply — unlimited number of parties. The miners were also incentivised to sell coins and distribute the supply to others via markets getting the control over value of incentives into unlimited number of hands.
Unlike many cryptocurrencies’ developers that valued trust minimization over personal profit, Ethereum, BitconnectX, Onecoin, and many others failed to use even the most basic design known since 2009 for trust minimized distribution of control and supply while profiting from that choice.
A trusted party deciding over a large premine at each fork can effectively choose which chain to attack the incentives to mine, secure, or hold coins to guide miner and user behavior to control block chain networks.
It’s a simple fact Ethereum is not decentralized or trust minimized by design. Many of the concerns brought up are not new either,
and similar points on the ICO distribution issues were brought up by others (link, link, link, link).
What are some examples the trusted party could do? No better place for examples than Ethereum. Ethereum developers have:
- created new hard fork just to edit state, censor user, and confiscate money (link, link)
- push black lists (link, link, link)
- choose on which fork value of incentives is safe and funded by premine (link)
- choose on which fork value of incentives is attacked, continuously under threat, and gets no premine funding (link, link, link)
- lie about premine significance (link)
- design an unsafe fork putting funds at risk of replay attacks (link)
- warn select users their attempts to use their chain will be compromised similarly, showing intent to attack as pre-emptive measure (link, link, link)
- lied, deceived, or manipulated for profit (link, link, link, link, link, link, link)
Part of the problem is also taking away credibility from legitimate projects by creating false equivalency to Bitcoin and similar by calling even such centralized efforts also cryptocurrencies:
Ethereum Foundation and anyone including Vitalik claiming any trust minimization after the premine and ICO demonstrate factually inaccurate representation of the properties of their design and incentives and suggest they don’t understand (or pretend to) the role of incentives in block chains.
Here’s an example of a Ethereum developer who falsely claims control of coins is “disjoint” and not relevant to Proof of Work security:
PoW is how decentralization is maintained. Ether holders and network security are two disjoint ideas. They seem similar so it would be an easy mistake to make though. — Joseph Delong (link)
To claim coin ownership and premine does not matter for decentralized tech is to claim incentives not to cheat do not matter for decentralized tech — completely irrational. To claim centralized premines are decentralized or that ICO’s are a trust minimized distribution method is equally irrational. Premines and ICO’s are a trust-dependent central permissioned backdoors to profit and to control the networks for just 1 party. Their claims serve to prove how Ethereum developers are unqualified and unreliable sources of opinion on the topic of decentralized technology and incentives.
Strangely enough, some Ethereum developers are aware of market based decisions calling it “market consensus” that’s determined by coin holders, which their design compromised from day 1: link.
The upcoming January 2019 hard fork is further solidifying the permissioned premine advantage by reducing emission rate of new coins from Proof of Work (link). It gets even more bizarre in Proof of Stake where stake determines block production directly instead of only via incentives and prevents any dilution from permissionless mining at all. In fact, the incentives are so poorly thought out that slashing conditions used in Casper to combat “censorship” can not only be abused by hypothetical DDoS attacks (link), but even easier by large holders such as premining party or even cartels: link. Slashing has been strongly avoided by many proof of stake developers on purpose as they do not add significant improvement over actual stake market value being at stake while scare of those afraid of making mistakes and introduce possibility of abuse that matters less with higher centralization from premines or cartels: link.
In summary, switching to Casper Proof of Stake:
- lets stake holders literally create blocks with content they want (like by trusted premine party)
- limits distribution to existing holders for their benefit (like trusted premine party)
- removes introduction of any new trust minimized distribution (doesn’t dilute trusted premine party)
- scale of entry into consensus/distribution requires permission of current coin holders to sell you coins (like permission from the trusted premine party)
- provides no incentives to sell coins to others (unlike continuous hardware/electric sunk costs in PoW)
- incentivises large holders or cartels via slashing (more avenues for abuse by trusted premine party)
- amplifies the dependence on trust in the Ethereum Foundation even further than PoW: link.
Let’s not forget that misleading users about a trusted party means misleading users about security and, thus, putting users well-being at unexpected risk: Trusted third parties are security holes.
Creating an alternative to designs relying on trusted third parties used by Banks, Paypal, Ethereum, Onecoin, BitconnectX are precisely why the invention of trust minimized design in Bitcoin including incentive distribution from start was so significant and unique. It was not unique from using hash functions, cryptography, nodes, internet, or some limited proof of work — all that has been done before. The completely novel trust minimized design was the result of the combined implementation of all those tools in a new unique manner. The unique approach was successfully utilized by Bitcoin and countless cryptocurrencies to create trust minimized networks since then. However, Ethereum’s pre-Bitcoin era trust model’s failure to meet even the minimum standard set 6 years prior for trust minimization while advertising otherwise is not easily excusable, no matter the intent.
It’s not possible for us to objectively know intent for the misleading behavior of premine and ICO promoters. However, unlike distribution mechanisms that give all parties permissionless fair chance to participate, the main difference of incentives for using the permissioned centralized designs is for the trusted party to get the advantage of the no-risk profit. These profits can afford more significant marketing to grow their acceptance and that could be one way to speculate on their growing popularity over time, like suggested by this artists timeline: link.
Simple fact is Ethereum developers consistently failed to design Ethereum to be trust minimized or decentralized, chose design incentivising centralization and dependence on trust in a single trusted party, while effectively mislead people while profiting. If incentive to mislead for profit about poorly understood technology is also taken into account, it’s not surprising that so many new people understand so little about Ethereum’s lack of security.
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