Cryptocurrency is more centralized than many advocates claim, according to report

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One of the big advantages of cryptocurrency over other financial systems, according to many of its proponents, is that no particular company, central bank or government has control. That’s not necessarily the case, though. Researchers who worked on a report commissioned by the Defense Advanced Research Projects Agency (DARPA) found that there can be “unintended centralities” in these supposed decentralized systems.

“It’s been taken for granted that the blockchain is immutable and decentralized, because the community says so,” said Dan Guido, CEO of Trail of Bits, the software security research company that worked on the report. He told NPR that cryptocurrency power is concentrated among people or organizations that have a large chunk of the pie. Almost like any other capitalist system, some might argue.

Trail of Bits defined “unintended centralities” as circumstances under which an entity has sway over a so-called decentralized system, which could afford them the opportunity to tamper with records of ownership. The report also notes that three ISPs handle 60 percent of all bitcoin traffic. A blockchain network could be disrupted if a communications regulator, a hacker or someone else with oversight of one of those ISPs slowed down or halted bitcoin traffic.

There are also weaknesses in the bitcoin network itself. The report found that 21 percent of nodes are running an old, vulnerable version of the core bitcoin client. Those systems could be targeted in an attempt by an attacker who’s looking to take over the majority of a blockchain network, though that seems relatively unlikely given the size of the bitcoin network.

Some of these situations are theoretical, but the report highlights some of the deficiencies of blockchain tech. There have been some clear instances of centralization impacting parts of the ecosystem, however.

It was reported this week that lending platform Solend (which is based on the Solana blockchain) tried to take control of its single largest account, because it said the operator could have significant sway over market movements. Solend planned to temporarily take over the “whale” investor’s account in order to liquidate their position “gracefully” and avoid possible disruption.

A proposal allowing the platform to carry out the controversial move (Solend calls itself a “decentralized protocol,” after all) passed on Sunday. However, Solend’s users voted on another proposal to overturn the first one, with 99.8 percent of votes in favor. As it turns out, the holder of the account in question had more than 1 million of the 1.48 million total votes. Solend is trying another method of liquidating the whale’s position, but for now, the platform’s power seems to be centralized in that account holder’s favor.