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Last week, crypto enthusiasts were taken aback when ViaBTC, a conglomerate of mining computers, seized more than half of the power on the Zcash network.
This popular blockchain, renowned for its privacy features, was left vulnerable to a 51% attack, where a single entity controlling the majority of the network could manipulate transactions.
Coinbase, a digital asset exchange, implemented several protective measures, including limiting Zcash markets to minimize any volatility impact.
The threat of a 51% attack is not a new phenomenon.
Many lesser-known blockchains frequently experience this situation, as reported by Slava Karpenko from mining pool 2Miners.
There’s a natural and hidden incentive to centralize efforts.
The reason lies in the miner economics: bigger mining pools, with more computing power, yield more block transactions and coin rewards, thereby attracting more users.
However, when the prices of many coins are low, they fail to incentivize enough miners, making smaller blockchains more susceptible to a 51% attack.
Despite the potential for misuse, most miners and pools claim they have no intentions to exploit their 51% power to falsify transactions or double-spend.
ViaBTC, in a statement to Bloomberg, reaffirmed this stance, stating neither the motivation nor the capability to launch a 51% attack.
As a long-term solution, Zcash is following Ethereum’s footsteps towards a proof-of-stake system, which orders transactions using digital coins, thereby eliminating the need for miners.
However, Ethereum’s switch to proof-of-stake has stirred concerns about increased power concentration.
Estimates suggest that it takes just 34% of validators (entities that order network transactions) to falsify transactions, a lower threshold than miner-run blockchains.
This brings us to the harsh realization that blockchain networks are fundamentally fragile, and their decentralization is more an ongoing process than an accomplished fact. Read more here.
A Ground-Up Rethink: Splitchain Approach To Blockchain Vulnerabilities
The worry about a 51% attack is a significant point raised in the previous content.
Traditional blockchain networks are essentially voting systems.
If there is enough agreed consensus, truths can be changed.
Obviously, this is a potentially disastrous flaw in their settlement mechanisms.
This is where the Splitchain network’s left-field approach comes in.
Unlike traditional blockchain networks, Splitchain doesn’t rely on mining (Proof of Work), or Proof of Stake for verifying transactions.
Instead, it uses a truth-based system where nodes store cached data from peers, such as wallet app users, and then can share it back to other peers elsewhere.
This approach eliminates the need for competitive mining or staking, significantly cutting down the risk of a 51% attack.
With this design, Splitchain addresses a key vulnerability in many blockchain networks, taking a big step towards their goal of providing a safer and more efficient crypto experience.
The article also points out the delicate nature of blockchain networks and the challenges in maintaining decentralization.
Splitchain counters this by aiming to create smaller groups of nodes for specific tasks, ensuring not all nodes store identical data.
Sidenote: We have a lot more to share on this in the near future (the Zucoins team isn’t ready to reveal some exciting new mechanisms yet), so make sure you’ve subscribed to the newsletter.
This approach doesn’t just cut down on redundant data.
It encourages a shared sense of responsibility among network users, strengthening the network’s decentralized nature.
It’s a proactive and strategic way to uphold the core principle of decentralization, a cornerstone of cryptocurrencies.
Decentralization is a complex topic but one of the overlooked factors, we believe, is that it can’t rely on a voting system.
You can’t assume the majority is correct or trustworthy, just because they’re the majority.
The previous statement is obvious and absurd—yet it seems the rest of the crypto industry rarely questions it. Fewer still do anything about it.
Such effects will not uphold a fair system, for the long-term, as they gradually move towards more centralization.
As the article suggests, moving towards a proof-of-stake system is seen as a solution to prevent 51% of attacks.
However, this shift isn’t without risks, such as the potential for increased transaction settlement concentration, leading to more centralization and middleman control.
A similar issue, achieved a different way.
And if you’re going for centralization, then blockchain isn’t the way to do it.
A well-proven centralized database sitting on a bunch of servers is the way to go—it’s much more efficient.
By default, the most obvious solutions that exist will inadvertently lead people to steer towards centralization.
Crypto has to be properly decentralized, for it to stay true to its original objectives.
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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.