Ethereum’s co-founder has recently launched seven uncomfortable questions highlighting the unsolved problems of current blockchain technology. Whilst some of his questions are deliberately provocative, they accurately represent the state of the current public blockchain ecosystem.
Let’s look at these issues one by one in slightly more general words.
1. Mining Centralization
Vitalik centers this question on Bitmain, which in his words now hold 53% of Bitcoin mining power, together with affiliate pools. To generalize this a bit more, mining power is dependent on low electricity cost and special-purpose hardware. This means that mining power is centralized in a few places. Do we really want monopolies of mining pools to maintain our transaction history?
Blockchain technology keeps promising to revolutionize many industries. However, we have so far not seen any large scale public blockchain applications according to Buterin. Whilst this may be exaggerated, it is true that the biggest application so far has been collecting pictures of cats, which does not shed a good light on blockchain adoption.
3. Account Security
Key management and keeping coins secure are difficult. Accounts keep getting hacked and funds stolen. We urgently need solutions for this, both in terms of security and in terms of usability.
Transactions take a few seconds to confirm. The Ethereum block generation time averages 15 seconds. Even if we manage to accelerate this to a few seconds, latency will still be significant for some interactive decentralization use cases being discussed.
5. Ecological Impact
Cryptocurrency mining burns an incredible amount of energy. It may be argued that using a proof of work consensus protocol is simply not justifiable. Fortunately, there are alternative protocols, such as proof of stake, which consume far less energy.
6. Unknown Centralization Risks (PoS)
If we do manage to get away from proof of work and start using proof of stake, we are exposed to a number of unknowns, as this type of consensus protocol has not been tested on a large scale. There might be unexpected centralization risks, of which we are not aware yet. This has happened before. We did not expect, for example, big mining pools with special purpose hardware to dominate Bitcoin mining.
We have touched on the problem of governance before. Decentralized networks, by definition, do not have a central authority defining governance procedures, protocol updates, and other issues. How do we decide which direction development should go? All these issues are unresolved. Buterin refers to the EOS on-chain governance model in his questions, which he calls an “epic fail”.
Of course, it did not take long for knowledgeable blockchain enthusiasts to respond to Vitalik’s comments. Of course, some of his points are debatable or even exaggerated. However, these questions do highlight issues that need to be addressed before we can see mainstream adoption of public blockchains.