Proof that Majority Rules is the Maximum Achievable Decentralization for a Cryptocurrency
Updated: Dec 26, 2020
A currency only used by one person isn’t really a currency. Currency only achieves worth if it acts as an exchange of value between many people.
This means that currency requires an agreement between all users of that currency.
Specifically, everyone must reach agreement over the current value of everyone’s account balance. Typically this is done by giving the power to make these decisions to an organization. The goal of cryptocurrencies, as best achieved by Frink, is to give this power to the people instead.
What many would consider ideal is to have the rules for the currency set from the beginning, then have them be impossible to change even with significantly more than 50% of the network trying to change the rules. Unfortunately, it is possible to prove it isn’t possible to guarantee this.
Three things conflict to make this impossible:
People exist that disagree with you over how the rules should work
Nobody can prove past events didn’t happen
Cryptocurrencies Solve This by Voting
This is famously known in the cryptocurrency world as “The Double Spend Problem”. When it comes to using a digital currency, everyone has to in some way agree to everyone’s current account balance. If a dishonest actor pays you and simultaneously sends all his money to a different account he owns, both transactions cannot be valid or else the currency is useless.
Cryptocurrency fixes this by essentially allowing some users to vote on which transaction is valid. Valid transactions are packaged into a block and added to the end of a blockchain, which creates an ordered list of all transactions that have ever occurred. Essentially, this means that miners are voting on which transaction is valid in the case of a double spend.
Traditionally cryptocurrencies allow people, known as miners, to buy their share of the power to vote. This is typically done through Proof of Work, which allows users to prove they’ve burned the most electricity powering their computers, or Proof of Stake, which allows users to directly prove they own a certain amount of the currency itself. However, since wealth in our society is highly concentrated into the hands of a few individuals, this is reflected in the distribution of mining power. As both are costly to maintain, this is true regardless of whether using Proof of Work or Proof of Stake. History has shown that this still leads to a very small number of individuals controlling the power over the money. It just happens to be a different group than we currently have and shifts the problem instead of fixing. Most importantly, it misses the entire point of cryptocurrency.. which is to give this power to you.
Unfortunately, this problem goes deeper than simply double spending. It is possible to prove that SPV mining is easy to cheat if a small group owns the majority of the mining power, in spite of most people believing otherwise, as long as a cryptocurrency wants to operate without requiring every single user to download the entire enormous blockchain (Bitcoin’s blockchain is currently over 320GB and with global credit card level adoption, over 250GB would be added per day), the miners do have this power.
This proves that the more people mining the better and less we have to worry about any central power controlling the currency. But it still doesn't prove that majority rules is the best we can do.
What happens if you require more than a Majority to approve a Transaction?
Given users are voting over the rules of the currency, it may seem logical that you could theoretically build a system where 66% of the mining power has to approve every transaction.
The problem is that you then give anyone with over 33% of the mining power the power to veto transactions and blocks and freeze the blockchain. Essentially giving the power to freeze the financial system until their demands are met.
So it would now seem logical to believe that 50% is the best we can do. While generally true when you assume that most of the network is honest and are talking about one group attacking the blockchain, unfortunately even this isn't entirely true. Now imagine a situation where there are three different sets of rules that could be adopted by the decentralized network. 33% of the network backs two sets of rules and 34% backs the other set of rules. The set of rules adopted by 34% of the network will win.
Therefore, majority of the mining power rules is the most decentralized that a cryptocurrency can be.
This is one of the reasons that concentrated mining power is even scarier. A group with only 34% of the mining power could attack and take control at the time of a practically evenly split decision over how to upgrade Bitcoin. Between the multiple pools they own, Bitmain already has this much mining power when it comes to Bitcoin.
Complete Decentralization: Everyone has an Equal Vote
Frink provides the best possible solution to this: force the currency to be completely decentralized, allowing anyone who wants it to claim their fair share of the power.
Frink accomplishes this by allowing users to vouch for each other. Frink then uses social network analysis to create an extremely hard to cheat and accurate, yet completely private decentralized ID for individual users.
Once users have their decentralized ID, they earn their equal share of the mining power. When the currency is truly decentralized, there is no small group of individuals that can choose to work together to harm the group not in power.
In this way, Frink accomplishes the best possible result: majority rules, where everyone gets an equal piece of the mining power.