There’s a potential danger in the underlying crypto token when projects and assets built on that platform, surpass the value of the actual crypto itself.
Let’s step back a bit first.
A valid critique lies in the supposed decentralization of blockchains, which ironically relies on increasingly centralized elements like miners or staking players that control the networks.
They do this by managing what gets approved onto the blockchain.
Despite the decentralization claims, most blockchains operate heavily on a number of network servers that perform either proof-of-work (“PoW”, e.g. Bitcoin) mining, or proof-of-stake validation (“PoS”, e.g. Ethereum, Solana, Cardano, etc).
Oftentimes, these groups band together to form highly centralized corporations or consortiums to increase their collective bidding power.
When this happens, they “pool” their efforts, either directly to the network or indirectly via corporate deals.
They do this to increase the odds of winning the next block that goes onto the blockchain and share the rewards.
It’s a long-known flaw within the blockchain industry, and it’s a way to control the blockchain network.
Another hidden danger is the popular use of centralized gateways like the Infura API, which is a way to talk to the Ethereum blockchain network without hosting a node yourself.
At times, Infura’s API handles more than 50% of transactions on the Ethereum network.
This is a huge problem for who controls the gates to the network.
Sure, you don’t have to use the Infura API, but it’s so popular that for many systems it’s becoming the default approach to talk to the Ethereum blockchain.
Although these PoW and PoS blockchains have mechanisms to penalize bad actors, their effectiveness remains uncertain.
What if the value of digital assets operating on certain blockchains surpasses the value of the blockchain’s native coin?
This scenario, while currently theoretical, would create an odd situation where native token holders could control transactions of a more valuable token, such as a stablecoin or another cryptocurrency on the same network.
This potential issue is not as far-fetched as it may seem.
Cryptocurrencies have grown rapidly over the last decade, and it’s worth contemplating the effects if stablecoins become mainstream.
For instance, on Ethereum, a PoS ledger, if validators’ stakes in the Ether token become less valuable than other digital currencies, they could theoretically profit more from a coordinated double-spend attack, where the same crypto is spent more than once, to buy up more of that more valuable stablecoin using counterfeit Ether that didn’t actually exist.
Given the risks, developers should consider rethinking the architecture of digital assets.
Relying on centralized miners or servers, potential coding errors in smart contracts, and the possibility of double-spending when projects surpass the value of their underlying blockchain platforms, all point to the need for alternatives to current blockchain architectures.
Given the increasing amount of major institutions moving into the space, this is a problem that may come sooner than later for traditional blockchains.
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