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When it comes to decentralization, most people agree that the more power a network has, the better for its users and other network participants. After all, a centralized system controls one or more individuals or organizations that can make decisions on behalf of everyone else. However, with the increasing use of blockchain technology and decentralized networks worldwide, we are seeing an increased push towards decentralization. While this is great news for many users who are cautious about centralized entities having too much control over their data and online activities, there are some potential pitfalls associated with decentralization. We have identified three pros and cons of decentralization that you should know before diving into this rapidly-developing space.
Decentralization may not be as safe as you think
Decentralized networks ensure that there is no single point of failure and that no one can tamper with the data being stored on the network. Both of these are critical for any organization or company to consider adopting blockchain solutions for their services and products. However, there have been instances where hackers have been able to breach decentralized networks and steal data. This is possible not only when the network is new and has not been audited and tested enough, but also when insufficient encryption is used to protect data. Decentralized networks are, by their very nature, open source. This means that anyone can view the code being used, whether it is a smart contract for recording transactions or the code being used to store data. The good news is that many decentralized networks have rules that require this code to be audited by a third-party security auditor to ensure that there are no vulnerabilities. Additionally, decentralized networks run on nodes that are connected to a network. This means that if a hacker successfully breaches one of these nodes, they may be able to steal data, or even tamper with it. Therefore, you need to ensure that nodes are well secured with strong encryption and other security measures.
There is a risk of losing your data when you deploy to a decentralized network
Although decentralized networks allow you to hold your own data, you may be required to store your data on the network permanently. This means that if you lose data or need to delete it for any reason, you cannot do so, unlike in centralized systems (email services, for example). There have been instances where people have attempted to delete data from a network, only to find that it cannot be deleted. This is because the data is being stored across a number of nodes, and one or more nodes may not have the data that is required to delete it. While this may not be a major issue for most people, it could be a critical issue for organizations that need to keep data for regulatory purposes. Therefore, it is critical to consider how you can ensure that you can delete data when necessary. Additionally, you need to be cautious about where you store data on a decentralized network. If a hacker breaches a node that is storing your data, they may be able to steal it, resulting in a huge loss. Therefore, it is critical to deploy your data using encryption, and make sure that the nodes storing your data are well-secured.
The increased cost of running a decentralized application
While decentralization ensures that everyone has an equal say in how the network is run, and it is unlikely that one centralized entity will dominate the network, it also means that there is no one person or organization to pay for the operation of the network. This means that decentralized networks are likely to be free to use, which is great for end users. However, it also means that you need to have enough money saved up to cover the costs of running your decentralized application. This includes covering the costs of servers, electricity, and other expenses required to run your application. Depending on how much data you need to store, how many transactions you process, and other factors, decentralized networks can cost more to run than centralized networks. Therefore, it is critical to ensure that your organization has the funds to cover the cost of running your decentralized application.
Users have no control over who can access the data they provide
When you are interacting with a centralized system, you have control over who has access to your data. You can decide which data is public, which data is accessible only to certain people, and which data is private and remains with you. Although decentralized systems have decentralized ledgers that keep track of transactions, data is kept in fragments across nodes. This means that you do not have control over who can access your data. Other network participants can likely view your data. Additionally, when you decide to interact with other network participants, you do not know where they are located. This means that they could be in any country, and their data could be stored anywhere in the world. This raises the question of how you can ensure that these nodes are secure enough to store your data.
Decentralization comes with its own challenges
Centralized systems are easy to understand and implement. You can create and manage them with ease, and they provide a single point of control. This means that if something goes wrong, you know who to go to. Decentralized networks, on the other hand, are challenging to understand and implement. This means that you need to have a firm grasp on how the network operates, and it could be difficult to find out who to go to if something goes wrong. Additionally, decentralized networks are constantly evolving, and there are many different types of networks available. This means that you need to understand which network would best suit your needs and decide whether to build your own network or adopt an existing one.
When implemented correctly, decentralization can be a potent tool for businesses. This is because it offers a high level of security and autonomy and allows users to keep all of their information private. However, decentralization also comes with several drawbacks, and companies will need to work hard to overcome these issues if they want to make the most of their decentralized network.
Reminder: I am not your financial advisor.
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The Future of Machine War II
In late 2021, I wrote an article about A.I. vs. Blockchain. I realized it was closer than I expected.
Web2 is leading a future of technological centralism.
The way we see the world in ancient is what we saw became what we believed. Later, the enlightenment process helped humans realize what they had seen was disguised by the nature principle. Once we tested our assumption and received accurate results, we thought we had mastered the nature principles. Yet, we did not make the world better than we thought we could.
We are living in a world in which companies know more than you than yourself. Companies can likely tell you what you should believe without letting you know.
The secret weapon that companies like Google invented is A.I. or Artificial Intelligence.
If A.I. can think like a person, it can easily replace you! Since companies got all your data, you freely offer them by using their free services, and they can replace you one day without you realizing it.
Without all conspiracy theories behind what Google may or will secretly develop, A.I. reaching consciousness is … impossible.
If it does, Google has successfully made a human – dumb!
The most advanced A.I. – Tesla Autopilot Program cannot distinguish objects between humans and other moving objects during driving.
Using technology makes people dumber than they think because it takes away your consciousness – the ability to think uniquely!
Blockchain is the future of decentralization.
We need a peer-to-peer system to regain consciousness and break the chain from Web2.
It gives individuals the power to rethink information.
Think about today’s media; all information is filtered to offer readers without any surprise. News is data that Web2 selected specifically for you to read.
We need a decentralized system so that you can receive unfiltered information and gives you a surprise that sparks ideas of imagination.
Web2 is afraid of the blockchain because they are too big to fail.
They mimic the blockchain by creating a centralized node system – social media network.
It is a net growing outward through a single point. Only the problem is that connection is facilitated by technology. And the biggest failure is such technology has a single point of failure problem.
And they cannot escape the law of economics – the law of diminishing. So we will see Web2 grow slower due to the law of diminishing that they require more data with few increments of advancement through A.I. without any breakthrough because A.I. is a deterministic system that works with a lack of randomness.
In Web2, they assumed everyone was stupid, and they offered solutions to everyone.
In Web3, everyone is good and should anticipate solving a problem together.
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Financial sanction to mixers
Have you heard about financial sanctions from the US on virtual currency? At least, I have not yet. But the US Department of Treasury has issued sanctions on two crypto services: Blender.io and Tornado Cash.
To clarify, the US sanctions on tools but not target specific entities or groups of people.
So why bother to sanction something that the government probably won’t be able to sanction in the first place?
What is a mixer?
A cryptocurrency mixer, sometimes referred to as a tumbler, is a tool for money laundering. The sole purpose of the invention is to make transactions untraceable.
How to mix?
Even crypto is pseudo-anonymous, but it is traceable through your wallet address. A mixer is a black box service to filter your traceable wallet address into the untraceable wallet address.
How to wash your money clean in the traditional way?
The assumption is you will not get caught at each stage, and then you place your dirty money in a bank through companies and use the funds to purchase legal goods like houses or luxury goods.
There are mature regulations and rules to stop you from putting your dirty money into banks.
Digtial money landury
A Crypto mixer or tumbler is a service to pool dirty digital currency in their favor and redistribute it into designated wallet addresses or addresses randomly generated.
It is a challenge to stop transactions because there is no entry point for law enforcement to stop at each stage.
Tornado Cash is the king of the mixer. Unfortunately, there is just no way to trace transactions anymore. It is a smart contract with zk-SNARKs (zero-knowledge proofs) that does not require revealing a wallet address during transactions and ghostly distributed funds without leaving any traces.
This tool is the ultimate weapon that the government has to shut down, or there is no way to prevent transactions.
Let’s change the future – legally.
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Why there is not crypto banking exist
We have always heard about cryptocurrencies, crypto exchange, banking, and trading platforms, but we do not really grasp the idea of crypto banking. Crypto banking is a contradicted idea. If crypto is to replace banks and give users full control of digital money, why do you put your crypto into the bank? The new research paper argued that there are risks for banks to adopt crypto, but they did it anyway.
Banks want crypto
Cryptocurrency has a rough road at the beginning and continues to experience a bumpy road ahead. The institutional investors were watching its performance. In early 2017, institutional investors had opportunities to adopt crypto, but they found out the return of the investments was less than traditional financial assets. Regulations were not a concern for some individual institutional owners, but banks were conservative at the time. As a result, some investors adopted it in early 2018 than banks did. Then suddenly, the crypto market took off in 2020, leaving many banks to regret their decision in 2017. Many banks set up their digital investment group to rush into the market and increase prices. Of course, many of their investment positions are instead of shadow positions. It is unclear how much they have been invested in and what vehicles they took to invest in cryptos.
Crypto exchange is a bank-like platform for crypto. Banks offered a place to purchase fiat currency. Crypto exchange did the same duty as traditional banks did. Since there was a gap between the crypto and banks, the crypto exchange took responsibility and offered crypto services. The crypto exchange took off after 2020, and they left banks in the dust. Then, crypto winter came in early 2022, and banks again hesitated to enter the crypto and started denouncing crypto usage, particularly in the Defi area. But interestingly, they tried to find ways to get into crypto without being directly exposed to cryptocurrencies—hint: through hedge funds.
How much banks exposure to crypto
We do not know how much banks have been exposed to crypto. We learned that the big Wall Street players were exposed to the services of the digital asset through State Street of their $41.7 trillion assets. Some have been exposed due to Luna’s collapse and 3AC bankruptcy. But again, no specific dollar amount was provided.
Since the crypto winter, institutional investors have been cautious about crypto exposure. However, crypto exchanges are the winner again. They are exposed to crypto and take risks more than banks do. As a result, they likely will weather the uncertainty. Furthermore, there is no need for crypto banking to handle your crypto assets since many such services will not survive long in the crypto environment.
Crypto is resilience
Despite its fluctuating price and unsecured assets, crypto is resilient to phase out any bad business ideas and bad actors in the economy who wants to or try to dominate the market but who transfers risks to users to believe they are the one who should take responsibility for their carelessness. Unfortunately, those business models will not survive long.
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