Properties of Centralized Systems
- We go over some common pitfalls of building systems which do not account for particularly nasty failure modes--system faults, monopoly pricing, censorship, & fraud. With cryptoeconomics we can make sure these bad things don't happen!
- Easy to build and reason about.
- Simple to scale.
- Semi Privacy preserving. (only the operator has your data)
- Single point of failure
- If the operator is removed (eg. servers burn down, servers seized by authorities), the entire system breaks.
- The operator can censor users and change their balances, and it is very difficult for users to prove malfeasance. This is because there is no client-side validation
- Because the operator has complete control, they can steal money directly from users.
- The only safeguard against this kind of misbehavior is the legal system & social reputation. Even these threats are not enough--see Bitconnect, Mt. Gox, and many other exchanges which have been hacked. Also, theft is often unprovable
- These downsides limit what can be built on top of these systems.
- Regulation and bureaucracy dictate the speed of innovation
Let’s decentralize :)
Why Decentralization Matters - Chris Dixon of a16z explains why decentralization matters for the next wave of innovation and human cooperation (with helpful diagrams!)
Why Decentralize? - A visual walk-through of a centralized payment processor and why decentralization is important.
Nightmare Market Scam - Because sometimes your paranoid dreams do come true...
Tether / Bitfinex Scam - Yes, that Tether. The one used by almost every small crypto currency exchange that simply won't die. It seems to be working very well, almost a little too well...