CE003: Centralization Risk \ stacker news ~bitcoin

pull down to refresh

545 sats \ 7 comments \ @manusbuck 4 May bitcoin

There are two main weaknesses of Bitcoin:

Centralization (discussed here)
Pooling of miners (discussed later)

Centralization weakens the rules of Bitcoin, whereas pooling weakens censorship resistance. Both of these can be avoided if more people start sharing the risks.

Centralization happens mainly due to two reasons:

Bitcoin is too difficult to use
On chain transactions requires fees

To reduce difficulty, people tend to use easy centralized tools like

Wallets
Explorers
Payment processors
Exchanges

Using these tools delegates both the control of coins and validation of Bitcoin rules. Avoiding this delegation is not easy.

It's not enough to have a self custodial wallet if you don't use your own node. (Think Phoenix)

It's not enough to have your own node if you don't verify every update. (Think Umbrel)

It's not enough to use an open source payment processor if it's running on someone else's computer. (Think BTCpay on Voltage)

It's not enough to run all of them in your computer if you don't understand the software (and hardware).

These steps make it increasingly difficult to use Bitcoin securely, so people tend to gravitate to centralized solutions. This is especially true when the threat levels are low (bull market).

It's not enough to do this on your own. You have to either find like-minded trading partners or train the existing ones.

If you are a merchant, you have to either make it easy to pay in Bitcoin or offer discounts to justify the difficulty. Both of these efforts take time and money. If you are using on-chain transactions, you have to consider fees and confirmation time. On top of these, government controls will either increase costs or force the merchant to shutdown (think Wasabi).

PS: This is an attempt to write a simplified version of Eric Voskuil's Cryptoeconomics one chapter at a time. Read the last chapter: #528771

view all related items

110 sats \ 2 replies \ @Scoresby 5 May

I was selling posters at btc++ this last week. I only accepted payment via lightning.

Most people paid with something like phoenix, Zeus, or breeze. Some people paid from cashapp or strike.

I would say it was very rare for people to use fully self-sovereign solutions that relied on their own hardware running their own ln node with multiple channels of their own choosing.

This is at a bitcoin dev conference where the population is probably more likely to use (and know how to use) bitcoin than anywhere else on earth.

Maybe things will get better (the tech will save us) but at the moment fully self sovereign solutions as you describe above are not being used in lightning.

On the other hand, I'm not sure there is a problem with that. Wallets like phoenix and Zeus (even when using them with only one channel to the wallet provider's LSP) are not necessarily a cop out.

I don't do huge volume of sales, but when I hit a certain threshold in my ln wallets, I swap out to my on chain wallet. And I do run my own node on my own hardware for that. Why can't we have the best of both worlds here?

17 sats \ 1 reply \ @manusbuck OP 5 May

We can have the best of both worlds. However, I feel the lightning experience is so magical in custodial and semi-custodial setting that it can discourage the diligence required to maintain a node. If users can set thresholds like you, it's OK.

It is similar to how cheap fast food discourages cooking at home. You can eat out once in a while but you should cook almost daily at home.

0 sats \ 0 replies \ @Scoresby 5 May

Good analogy. And it is magical when you get money from someone in seconds with almost no fees.

In the case of easy to use lightning wallets there may be a natural cap in that they are hot wallets and those hot wallets will become targets if they get too big a balance.

10 sats \ 1 reply \ @elvismercury 4 May

Does Voskuil really say pooling is the risk wrt mining? I'd say that mining centralization is a big concern, but pooling is the least of it.

10 sats \ 0 replies \ @k00b 4 May

I think he's pointing out that mining pool operators create the block templates and block templates specify which transactions get into blocks and which don't. So even if mining were perfectly decentralized, pools, which are necessarily centralized to smooth out mining rewards, pose a centralization/censorship risk.

Stratum V2 fixes this by letting miners select block templates themselves. But it's not being deployed let alone tested by miners yet. @bluematt shamed them on TFTC recently. They discuss the discovery that >51% of hashrate already belongs to one "pool of pools".

Of course, there's also manufacturing/supply chain centralization to worry about, and the super cluster of miners currently in Texas.

10 sats \ 0 replies \ @riberet19 4 May

I heard recently that 82% of Bitcoin users are in custodians, no wonder, because people don't want to learn.

0 sats \ 0 replies \ @Coinsreporter 5 May

Yes, you're right about people choosing easy solutions because of the same reason of easiness in use.

But, by doing this they have accepted that their interest doesn't lie in the innovation and freedom of money. Instead, they are mushrooms in the rain who are here for quick bucks.

So, I don't care about them. They will learn a lesson as many have already learned in 2022.