Daily Crypto, Finance, and Tech News Summary – September 21, 2023

Join the newsletter

700+ people get the latest insights, news, offers + more

(By subscribing you agree to receive news + marketing emails, but we won’t spam or sell your data!)

Welcome, and thank you for being part of the MyZucoins community! Let’s get into an interesting piece of crypto, finance, or tech news to stay ahead.

Buildings sitting atop a thin weak column

Blockchain’s Hidden Vulnerability In Decentralized Finance

There’s a potential danger in the underlying crypto token when projects and assets built on that platform, surpass the value of the actual crypto itself.

Let’s step back a bit first.

A valid critique lies in the supposed decentralization of blockchains, which ironically relies on increasingly centralized elements like miners or staking players that control the networks.

They do this by managing what gets approved onto the blockchain.

Despite the decentralization claims, most blockchains operate heavily on a number of network servers that perform either proof-of-work (“PoW”, e.g. Bitcoin) mining, or proof-of-stake validation (“PoS”, e.g. Ethereum, Solana, Cardano, etc).

Oftentimes, these groups band together to form highly centralized corporations or consortiums to increase their collective bidding power.

When this happens, they “pool” their efforts, either directly to the network or indirectly via corporate deals.

They do this to increase the odds of winning the next block that goes onto the blockchain and share the rewards.

It’s a long-known flaw within the blockchain industry, and it’s a way to control the blockchain network.

Another hidden danger is the popular use of centralized gateways like the Infura API, which is a way to talk to the Ethereum blockchain network without hosting a node yourself.

At times, Infura’s API handles more than 50% of transactions on the Ethereum network.

This is a huge problem for who controls the gates to the network.

Sure, you don’t have to use the Infura API, but it’s so popular that for many systems it’s becoming the default approach to talk to the Ethereum blockchain.

Although these PoW and PoS blockchains have mechanisms to penalize bad actors, their effectiveness remains uncertain.

What if the value of digital assets operating on certain blockchains surpasses the value of the blockchain’s native coin?

This scenario, while currently theoretical, would create an odd situation where native token holders could control transactions of a more valuable token, such as a stablecoin or another cryptocurrency on the same network.

This potential issue is not as far-fetched as it may seem.

Cryptocurrencies have grown rapidly over the last decade, and it’s worth contemplating the effects if stablecoins become mainstream.

For instance, on Ethereum, a PoS ledger, if validators’ stakes in the Ether token become less valuable than other digital currencies, they could theoretically profit more from a coordinated double-spend attack, where the same crypto is spent more than once, to buy up more of that more valuable stablecoin using counterfeit Ether that didn’t actually exist.

Given the risks, developers should consider rethinking the architecture of digital assets.

Relying on centralized miners or servers, potential coding errors in smart contracts, and the possibility of double-spending when projects surpass the value of their underlying blockchain platforms, all point to the need for alternatives to current blockchain architectures.

Given the increasing amount of major institutions moving into the space, this is a problem that may come sooner than later for traditional blockchains. Read more here.

More On This Topic:

The high US concentration of Ethereum nodes raises decentralization concerns.

Decentralizing Ethereum: Vitalik Buterin’s 10-20 yr long roadmap for a simpler, resilient network. The ground-up crypto rethink: Zucoins’ Splitchain.

Industry still isn’t close to solving the “blockchain trilemma.”: Would be a huge breakthrough.

Ethereum survives AWS outage, raises centralization concerns…Lido, the leading liquid staking provider with over 35% of staked Ethereum, could be particularly vulnerable

Rethinking Crypto Foundations: Beyond Blockchain With Splitchain

The first lesson from the author’s critique of blockchains is the inherent risk of dependence on powerful entities, a concern that Zucoins’ Splitchain addresses with its unique architecture—a truth-based system that eliminates the need for mining or validator pools.

Traditional blockchains lean heavily on miners or large token pools for control, creating an expansion of centralized points of failure and increasing the odds of control and corruption over time.

By allowing nodes to cache data and provide it to peers for efficient processing, the Splitchain network avoids the centralization seen in traditional blockchain networks and is working to further decentralize more parts of the system.

Thus, it provides a robust answer to a significant criticism of blockchain technology.

The article also highlights the potential for a double-spend scenario when projects exceed the value of their underlying blockchains.

Such a scenario makes the incentive for keeping the blockchain going as is, less viable, as there is more alternative to ignoring the default rules, thus gaming the system.

This can occur so long as 51% of the blockchain network that is validating the transaction agrees to the change—which, if the incentive is there to do so, has a real chance of happening.

Splitchain, however, is not a consensus system. For this reason and many others, it’s not a blockchain.

It doesn’t use voting mechanisms, where the majority wins, even if they’re wrong.

Splitchain maintains fairness and accuracy so long as a single node on the Splitchain network that is telling the “truth” (cryptographically), can be found, regardless of what the majority say—it’s not consensus. There’s no voting involved.

This is a huge differentiating factor for long-term safety.

It drastically minimizes the odds that someone will steal ownership of digital assets from someone else, raising the bar much higher.

The critique’s call for a rethinking of digital asset architecture echoes the goal behind Zucoins and the Splitchain network.

The industry’s need for alternatives to blockchain is precisely what Splitchain offers.

In this way, Zucoins and Splitchain are not just reacting to industry trends but are helping to set the pace for the future of digital assets long-term, solving fundamental issues plaguing current systems.

If you liked this newsletter, please forward it to someone who might like it too.

You can also donate here or even buy some Zucoins. Every little bit helps us improve.

What did you think of this newsletter? Reply to send us feedback on what you liked or want to see featured more. There’s more coming, so stay tuned.

All the best,
Peter & Rob

Disclaimer: Of course, this is not advice, financial or otherwise. It’s also important to consider the risks and challenges associated with any potential benefits.