Vitalik Buterin warns that many cryptocurrency projects focus too much on business models to sustain resources, but overlook the decentralized model to avoid the concentration of power and systemic risks.
In his paper "Balance of Power," published on December 31st, the Ethereum co-founder analyzed the relationship between power and control mechanisms, emphasizing that decentralization doesn't always happen spontaneously but sometimes requires deliberate design.
- Many projects overlook the decentralized model during development.
- Decentralization has areas where it's naturally easy to achieve, and areas where it requires design.
- Long-term challenge: maintaining effective focus while minimizing negative consequences.
Balance of Power: A warning about the concentration of power in cryptocurrency projects.
Vitalik Buterin urged projects to consider decentralization as a design goal as important as the business model, in order to limit the concentration of power and systemic risks.
He argues that during development, many cryptocurrency projects focus solely on the business model: how to continuously attract resources to maintain the team's operations. According to Vitalik, this approach easily leads to neglecting the decentralized model: how to avoid concentrating power in a single point of control within the project, thereby increasing systemic risk.
The focus of the article is the relationship between power and mechanisms of checks and balances. Vitalik argues that the more concentrated power is, the greater the need for layers of control; without them, a project may face the risk of deviation from its goals, decision manipulation, or over-reliance on a small group.
When does decentralization occur naturally, and when does it need to be designed?
Vitalik gives the example that some natural systems are difficult to monopolize, but many others are only decentralized if designed with the right mechanisms and architecture.
With language systems like English, or open protocols like TCP, IP, and HTTP, the absence of a clear central point of control makes it difficult for a single entity to monopolize a dominant position. These are examples of decentralization that tend to develop naturally due to their open and distributed structure.
Conversely, in many other applications and contexts, decentralization doesn't just appear out of nowhere. Vitalik emphasizes that projects need to proactively design institutions and architecture to achieve effective decentralization. He believes that achieving the flexibility and efficiency of a centralized model, without the downsides of centralized power, will be a major challenge facing the cryptocurrency industry for a long time.
