Principles of Cryptocurrency Investment: Beware of Hidden Centralization Risks

At the end of the article from the day before yesterday, there was a reader comment:

"The reason for the security issue is the centralized mindset, and the current method to solve this problem is also centralized."

The part of the comment "the current method to solve this problem is also centralized" made me think of the ubiquitous "centralization" traps in the current crypto ecosystem.

First, I want to emphasize again:

I have always opposed the idea of decentralizing everything. For example, I explicitly oppose the so-called decentralization by management teams (such as the Ethereum core development team) because such decentralization cannot efficiently advance the project (Ethereum) in keeping up with the times.

I also do not believe that "centralization" and "decentralization" are inherently good or bad. When to "decentralize" and when to "centralize" completely depends on the specific use case and context.

However, if we step into this very unique new world of the crypto ecosystem, all my views will be tightly linked to "decentralization."

Why?

Because only decentralization and resistance to censorship can fully unleash creativity and nurture the seeds of miraculous creation, leading to the greatest achievements of human wisdom.

But because humanity has long lived under the control of "centralization," our thinking is filled with the seeds of "centralization," so the default mindset for handling any matter is "centralized."

Because of this, creating a decentralized and censorship-resistant world is so difficult, leading to many pitfalls and problems.

However, problems and pitfalls have never hindered the progress of the crypto world, nor can they stop its advancement.

Guided by this mindset, my basic judgment criteria for all layer one blockchains are very clear:

This is the foundation that supports the crypto ecosystem; it must be as decentralized and censorship-resistant as possible.

By this standard, I can count only two on my fingers: Bitcoin and Ethereum.

So for so many years, I have hardly looked at other layer one blockchains. Many of them are dressed in splendid appearances, but in my view, they are essentially no different from EOS, which has only 21 super nodes.

Yes, many of those chains are efficient and operate well, and even have so-called ecological prosperity at certain stages. But I believe that is because they have not encountered catastrophic disasters. Once they face an event similar to Aave that sweeps through the entire ecosystem, it is likely that only Bitcoin and Ethereum will survive.

Regarding layer two scaling, I have always believed they should be more decentralized. However, their progress over the years has been too slow.

In fact, the Ethereum ecosystem has already provided various solutions to strongly bind security to Ethereum for layer two scaling, such as Native Rollup, the EEZ framework proposed by Gnosis, etc. If any of these solutions were adopted, the problems Aave encountered and many other security issues would not occur on layer two scaling.

In this regard, I hope Vitalik will promote this more forcefully and not be afraid of offending a host of layer two projects. Because projects with long-term vision will surely recognize this as a win-win solution, while projects without long-term vision should be eliminated without nostalgia.

Otherwise, today, the vast majority of these layer two projects will continue to operate their systems, which are essentially centralized, in a half-hearted manner. In the end, they will encounter catastrophic events like Aave.

For various decentralized applications (dApps), because I participated in the security review of many dApps for a period of time, I know that apart from a very few top projects, almost all other dApps have left "centralized" backdoors—claiming it is for "emergency brakes" in critical situations, but it also introduces the risk of running away with funds at any time.

This won't be exposed during peaceful times, but once faced with a storm, it becomes difficult to say.

Therefore, even when I use various dApps, I basically only use top-tier products. As for knockoffs, no matter how high their promised returns or how generous their rewards, I avoid them whenever possible.

Of course, in real life, many ideals will clash violently with reality. This clash can sometimes lead to painful compromises.

But such compromises must set very high thresholds.

For example, the recent incident where Arbitrum froze the hacker's assets through its security committee has sparked significant controversy.

I think a better approach might be to introduce a DAO for management, setting a higher voting threshold for the security committee, such as automatically freezing sudden large assets first, and then allowing all ARB holders to participate in voting within a specified time to ultimately decide whether to release the frozen assets through DAO voting.

This method of introducing DAO management is also what the crypto ecosystem has always pursued as "decentralized governance."

Aave's recent troubles have raised many issues and sparked even more thoughts. But I believe that after this baptism, real projects will become stronger, and the idea of "decentralization" will gain more recognition and understanding.

The crypto ecosystem will solidify for a period and then continue to move forward boldly.