Blockchain ain’t useful without Cryptocurrency”: Wrong!!!

Recently I am hearing a new story from the crypto-asset owners and other vested interests as a rationalization for allowing cryptocurrency and virtual assets on cryptocurrency blockchains. Earlier the statement was “without cryptocurrency innovations in blockchain technology will stop”! When that argument did not cut it – given the plethora of evidence that blockchain technology – especially permissioned blockchains are being used in many innovative applications – including in the FinTech sector – now comes this new false slogan.

Normally I would ignore such unsound assertions – but recently I was in a meeting – where such assertions were being uttered by many – and absurd example scenarios were being quoted such as payment of open-source innovators using cryptocurrency – as if there is no other way of paying them. Creating money out of cryptography destroying climate or being at the mercy of a few private controllers is not really innovation – it is what the world is now.

The logic that was provided was appealing to the concept of democratization – stating that permissioned blockchains have a number of stake holders who also are the validators and miner of blocks – which yields power of consensus of the distributed ledger in the hands of a few, as opposed to a public blockchain where anyone can be a miner. However, unlike stake holders of a permissioned blockchain – only way miners would participate in mining of blocks is when they are incentivized by cryptocurrency as rewards.

I would have accepted that argument if it was reality – but unfortunately this is not how things turned out to be. Satoshi Nakamoto’s white paper thought of such lofty ideals – but like any other economic systems – this one also slipped from the public and got captivated by only a few. So all the arguments of democratization and power of everyone and anyone – remains what it is – complete pipe dream.

This also is not tenable when you consider proof of stake consensus – which is being shown as a replacement of proof of work consensus – and hence attempting to disarm arguments based on power consumption in the mining process of bitcoin and Ethereum etc.

I will just quote one statistics which my team of postdoc and researchers have confirmed to me recently even though we did the same study in 2019, we wanted to check again with the recent most situation.

In the Ethereum platform if you look at the ether balances in the accounts:

Top 10 accounts hold ?23.25% of the ethers

Top 100 accounts hold 39.41% of the ethers

Top 0.1% accounts hold 94.64% of the ethers

And Top 0.49% holds 97.78% of the ethers.

Note that the number of real persons behind these accounts could be even less as the same person may hold as many accounts as they want. ?

That means even in a proof of stake consensus, a minuscule fraction of the accounts will have control over what transactions make it to the blockchain. It will become an oligopoly almost a much more distorted version of world economy today. Given the prices of these currencies in the fiat currency are so high – only very deep packet people will decide everything on the platform – and if they conspire together, small retail investors will continue to bleed whatever small amounts they can afford.

We are in the process of collecting the same statistics for bitcoin as well but in bitcoin there is an additional complication that the addresses are not really accounts – and each time a transaction is made to spend bitcoin – a new address (change address is generated). We have developed heuristics to cluster multiple addresses which are being aliased continuously with every spending transaction.

However, earlier similar studies showed similar inequalities in the bitcoin platform as well. I am not expecting the percentages to be too different in any of the popular cryptocurrency frameworks. So, there is more inequality in cryptocurrency platforms and an oligarchy is obvious.

Therefore, it is not correct that having public permissionless cryptocurrency platforms will provide wide based blockchain transaction integrity.?