Kir Kelevra: Decentralized Centralization Is Coming

A short while ago, ForkLog conducted an own investigation of affairs around Ethereum Classic, mostly inspired by customer claims against exchanges. This time, we publish a translation of a private opinion of crypto-traders and bitcoin enthusiast Kir Kelevra as to Ethereum Classic and other processes that have shaken the industry over the recent months.

If you have your own opinion different from that expressed hereunder, please contact ForkLog. We will publish any different view on the situation, provided it is justified.

DISCLAIMER: ForkLog’s editorial board does not necessarily share the opinion of a contributor. ForkLog is a platform for discussions, and the project’s board does not take any sides in any disputable matters.

Balance Upset

A true drama is unfolding before the eyes of the whole cryptocommunity right now. However, I believe the drama follows a well-planned scenario. When you’re paranoid enough, and the pieces of the jigsaw fit very logically, you can’t help believing it.

Let’s start from the beginning. What do I mean when I say ?the beginning’? I mean that fact that the crypto-economy was conceived as a decentralized alternative for the existing and decaying economic system.

Satoshi Nakamoto brought not only the technology itself, but also the idea that underlied cryptoeconomy, as well as the system of relations that evolved into blockchain with its own internal value measure, the bitcoin.

But Bitcoin wasn’t enough, so the ?computer Mozart’ of our times, Vitalik Buterin, re-conceived the existing system and dubbed it Ethereum. It was him who came up with the best application of the system by using programmable units, smart contracts.

Still, Vitalik has made a huge mistake everyone, apart from Satoshi, would have done in his place: he headed the process in order to continue developing it. Vitalik thought that nobody could do the job better, thus violating Nakamoto’s primary ideological postulate: the balance of decentralization.

Whether it was a conscious decision, or he just failed to cope with numerous external factors, doesn’t actually matter. It’s quite clear life is far from easy for him now, but he’s doing well. Just imagine the pressure on a man who owns the project with market cap exceeding a billion dollars every now and then. I by no means am attempting to absolve or ennoble Buterin, I just think that he deserves respect in any case, while we can’t see the actual lowdown.

Anyways, whatever the product is, Ethereum’s creator has already written a new chapter in textbooks that our children would study crypto-economy with. He brought the world a new logic of thinking, and pushed bitcoin itself. His project has become the first worthy adversary of blockchain.

But still, not everyone quite understood that Ethereum, as of the moment of February release of ETH, was a centralized project. Over a few months, the centralized token’s price gained record-breaking $20 (double exchange via bitcoin). All major exchanges started trading the cryptoasset, while start-uppers started asking themselves was it better to rewrite the unfinished projects on Ethereum’s blockchain.

They called Vitalik’s project Bitcoin 2.0 omitting its centralized nature. And everyone seemed quite happy with it, apart from few crypto-ideologists. The story that kicked of with The DAO, which preceded the current events, has shown that people mainly don’t give a damn on decentralization, and money is what they really care about.

The impudence of centralization of allegedly decentralized projects has grown beyond measure after The DAO emerged. The project’s creators having dubious CV’s just offered the power to the people, so that the self-governance would be based on smart contracts and controlled by the people. They have run the biggest ICO ever by exchanging 1 ETH for a hundred of The DAO tokens, thus raising nearly $160 million (considering ETH vs BTC exchange rate at the moment). This meant that nearly 15% of all ETH tokens were in the same smart contract, or, in fact, in the same hands.

I myself, guided by ideological observations suggesting that the self-governance idea goes against the common sense, haven’t bought a single The DAO token for my portfolio.

The majority’s opinion is always mistaken, as most of the people are idiots, E.A. Poe used to say. He died alone because he was neither an idiot, nor a majority.

Cui Prodest?

The most interesting things began happening after The DAO tokens entered exchanges and (sic!) started having an added value. In fact, one could sell the tokens at a higher/lower price as compared to their initial value. But they were just a derivative not having their own price. Still, the avarice of some investors has shown its best. Both assets were gaining value at the speed of light.

That’s when the attack on The DAO occurred. Somebody found a vulnerable point and created a recursive contract to withdraw nearly one third of the entire Ethereum volume from The DAO’s wallet. When people discovered the way it happened, it was fairly too late. Almost $60 million were lost. The price of both assets instantly plunged. ETH lost nearly half its price over a few hours, and The DAO even more.

In order to put a lid on the damp, Vitalik Buterin asked exchanges to halt the trades, and they were happy to comply. Just check it out! My eyes just popped out of my head. One young man has just proven his power to stop a billion-worth crypto-asset from being traded!

I recall myself raging about the lack of decentralization, and even called the project Butherium, but I failed to see the most important: why? Why did Vitalik have to pull The DAO out of the swamp and save the day in such a strange manner? Why, after all, did they start trading The DAO in the first place? Who needed that?

Softfork v Hardfork

Hadn’t they interfered, Ethereum would have restored in a while, while The DAO would have remained a failed experiment subject to forgetting. Still, the incentive to save The DAO and the unlucky investors has reached an enormous scale. They started talking about forking it all. Nobody knew would it be a soft fork, or a hard one.

But what happened to the stolen assets at the moment? What was happening to the prices? The DAO was clearly being exchanged for ETH at various exchanges for the obvious purpose of consolidating the revenue. Those who wanted to earn something were just doing it while the community was arguing in attempts to determine whether it would be a soft or a hard fork. The attention got switched from The DAO to the mechanism of preventive measures and ideological gaps of Ethereum itself.

A failed softfork featuring a new vulnerability popped up when the quarrel was in zenith. The reaction was prompt, but still it wasn’t over. Ethereum managers decided to use the central power by seducing major miners to their side and to roll back Ethereum to exclude the transactions involving the lost The DAO tokens.

At the first glance, they were doing well with this hardfork thing. However, some community members refused to accept such strict measures beyond any reasonable boundaries; nearly 10% of miners continued mining good old Ethereum and dubbed it Ethereum Classic. Due to low hash rate, the number of miners started growing. Thus, everyone who had had ETH prior to the hardfork now had ETC coins on old accounts of non-updated software.

But now they had to do something with the fork. They had to trade it somewhere. So, the miners and three major crypto-exchanges have agreed in advance to incorporate the fork into their baskets.

They hid themselves behind ideology once again. They said Ethereum has to be original, and nothing is to be changed. That’s how I finally understood what was going on. They were using ideology to create a great pump (an upsurge of exchange rate with subsequent rollback). That’s exactly what happened. Somebody even believed that ETC would grow and win back a part of centralized ETH’s cap.

It’s yet unknown when those ETC holders that obtained it to the full extent are sated. It was easy to mine ETC in the very first days. For now, we may see the market being swayed by new ETC price surges.

Holders of the original ETC, having received a surrogate for free, have suddenly become couch-based traders. Some have even succeeded. It’s essentially a demo account that can become profitable without any risks of loss.

The real puppeteers make minor info injections in various media and just watch the situation unfolding. Everything is up to the book. Active support from some crypto-related media looked much more like an attempt to influence the community – at least until it became clear who had been behind Ethereum Classic.

So, in the end, we now have centralization where it wasn’t meant to be. Now it’s two of them. But one of them doesn’t lie, while the other is downright mendacious.

The Exchanges

Now, let’s recall what the exchanges were doing back then. When three major ETH trading platforms announced the addition of ETC, I frowned: you can’t do that! It’s like printing a new design of dollars, recognize the new banknotes as legal, and then print the same amount of the old-design ones allowing people to use them at major platforms. Is it a fork or deflation? It’s pretty hard to make out who’s doing what.

On the one hand, the urge to prevent the Attacker to earn something by making a fork is a good intention (even though he or she had earned and sold everything long ago); on the other hand, the ideologists of a clean and immutable blockchain have let the hacker and, most importantly, those having the greatest share of ETH (exchanges) earn something once again.

Some cried ETC was a scam, some doubled the balances and allowed users to trade, and some remained silent. But, after all, who had the biggest share of ETH? How many ETH were controlled by users? How many were there on hosted wallets of various exchanges and projects? How many ETC are now controlled by their owners?

When I asked myself those questions and tried to answer them, I realized who derived the benefit – and they are not decentralization fans. We’re witnessing a truly non-regulated struggle for power in a blockchain. Some people involved in Core vs Classic disputes in Bitcoin started pointing at Ethereum as an example of what shouldn’t happen in Bitcoin.

The early August’s events just reinforced my conviction in the avarice inherent in a part of the community, the decentralization delusion, and the big and dirty struggle for power. That’s what we’re seeing right now.

Bitcoin: What Happens Now?

Early this August, following a prolonged consolidation of Bitcoin at around $660, the trend was evident. However, whether it was upward or downward, wasn’t clear. Too high hopes within the community, its urge to consolidate profits or losses, or simple oversaturation of assets have finally formed a bear trend on the way to the technical line at 200 MA. Eventually, those playing short with downward lever won, while those waiting for growth (and this was the biggest part of the community) failed.

Going down the trend and flushing the bull majority was profitable only for the exchanges. As far as we know, nearly 70% of the entire daily volume now circulates in China. So, the world’s biggest platforms are shaping the market’s mood. The case of Bitfinex, its security breach and operations halt just assured me that I got the current processes right.

The existing down-trend makes it clear that a ?hack’ (if there was any) of an exchange would lower the price wven further. Then, having removed all traders from trades, they may close all their position consolidating their losses, and then, adding to that, to deprive them from one third of their balances by issuing a derivative token under the auspices of a ?hack’. It’s a superopportunity of a superprofit.

For that reason, we see dirty competition and a conflict of interests giving advantages to one of the camps. Who makes the profit? Who controls the most? Who holds the majority?

In this situation, those dying to become rich right away don’t care who is right. But we care, as we are right here. Those looking deep into the processes have to see we’re being manipulated. This understanding has to shape the right vision of the affairs.

Not everyone is ready for centralization now, so Ethereum will survive, possibly along with centralized Classic. There’s no doubt that Bitcoin will also become centralized soon. Or, has it already?