Proof "Centralized" Decentralization Can Still Be Targeted

Many of us keep beating the same drum:

Decentralized or else.

This is something that the industry pays a lot of lip service to but do they really do that? Is it something that is high on the priority list of most projects?

The answer is an obvious "no". We know that most projects are extremely centralized. Perhaps they need to be at the start for efficiency. However, this is a major point of vulnerability. Unless people are very cognizant of the risks that are out there, they will be snake-bitten.

It is exactly what happened.

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Source

When Is DeFi Not Decentralized?

Some are finding out the hard way.

Imagine this scenario:

You go to a conference about your particular industry. This is a gathering like others of this nature. You meet colleagues, have a few drinks, and discuss what is taking place in the industry. For almost all, it is a time of learning, networking, and a beneficial experience.

The lone exception is you. While you might have had this experience, you also are handed a subpoena.

It is the experience of Terraform Labs CEO Do Kwon. The South Korean resident is fighting back by suing the SEC. Whether this is a viable path or not remains to be seen.

Here we see the second action by the SEC regarding this project. Kwon was emailed by them in May.

At issue is Terra’s Mirror Protocol, a decentralized finance (DeFi) platform on which synthetic stocks mirroring the price of major U.S. firms are minted and traded.

Obviously synthetic assets are going to garner a lot of attention. This is something that is in the scope of the SEC. As we can see, being outside the United States means little.

Hence we are confronted with the challenge. This is a DeFi project that is still getting attacked by the regulators. Therefore, the idea of being "decentralized" is not enough.

Point Of Vulnerability

Whether the project itself is at risk of attack by entities such as the SEC is not the main issue. We know the governments have a problem with decentralized systems. Thus, we see they tangent to something they are more adept at dealing with.

The problem here is the point of vulnerability is a centralized entity. We have a company that is behind the development. It is where the SEC is focusing their interest.

“In a conversation on September 15, 2021, the SEC attorneys advised that they believe that some sort of enforcement action was warranted against TFL [Terraform Labs] and any cooperation, and implementation of remedial actions as to the Mirror Protocol, would result in a reduced financial sanction as part of any consent agreement,” the suit said.

Source

It becomes clear very quickly where the downfall can be. Anytime a centralized company is behind the development or financing of a venture, it is not decentralized. We might see a product that is created which fits the description. However, from a legal point of view, there is a target.

And as we can see, it will be exploited.

This is similar to what UniLabs encountered. Even though Uniswap took measures to decentralize, even issuing governance tokens to get the decision making out of the developers' hands, the team cannot avoid adhering to the regulators. They are a point of weakness.

Of course, while the industry talks of decentralization, a great deal of the development we see taking place is funded by Venture Capitalists. These firms certainly adhere to regulations and are going to cooperate with the authorities. They simply have too much to lose by not playing along.

In reality, most of what is called "decentralized" does contain some point of vulnerability.

Hive Fixed This

Founder's Stake, laboratories, or VC money all tell the same story. No matter what anyone says, the points of vulnerability are created. Over the next year or two, we are going to quickly see this utilized by the government entities to gain control.

Before going further, it is important to note that those targeted can fight back. We see this with Ripple and the lawsuit filed by Terraform Labs shows that action can be taken. Nevertheless, it is a long process which racks up legal fees.

It is far easier to simply operate around this.

With Hive, we see there is no Founder's Stake in any individual hands. It was converted to a DAO, which helps to fund development. This is determined by the voting of the community, with no single account having more than a few percent. This is the first layer of protection.

The development team is a mixture of people from different parts of the world. While Blocktrades gets a lot of attention, there are others involved. One of the key goals of the first year was to develop to the point where it could keep going without that team. The Hive Application Framework will help a great deal in this endeavor.

Hive is a distributed system. Many complain about the token makeup yet, when compared to most other blockchains, Hive is spread across a lot of wallets. As mentioned, no single entity has an major share. A few percent in raw numbers is rather large but it is not a point of total control. Just look at Tron, Ethereum, and some of the others to see how overwhelming the Foundation or Founder's Stake is (most of us lived that with Steem).

Finally, we are seeing development occurring through the use of funding from the DAO. The Decentralized Hive Fund is now paying a few projects that will expand the reach of Hive while also further decentralizing many aspect of the online world. We also see the geographic distribution since the individuals involved with and behind these projects are spread all over the world.

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After the fork of Hive, it was reported that Hive Blockchain Technologies, Ltd wanted to stop the use of the Hive blockchain name. Of course, nobody asked for permission from this company, which was, logically, upsetting to them.

The resulting action, or lack thereof, tells the entire story. That company, or more accurately their lawyers, could not find anyone to serve. How do you sue someone who doesn't exist?

That is the case with Hive. There is no individual or company to go after. If this is true for a bunch of lawyers trying to serve a cease and desist notice, it also holds for regulators.

Unfortunately for Terraform Labs, while their application might be decentralized, their company is not.

"Centralized decentralization" can still be targeted.


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Bang, I did it again... I just rehived your post!
Week 78 of my contest just started...you can now check the winners of the previous week!
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Interesting point about decentralization, never really thought of it before 🙃

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Hive Fixed This

Are you sure?

As mentioned, no single entity has an major share.

There are few people (whales) instead, who basically controls the 80% (maybe more) of the distribution. There are some good whales, who support smaller accounts, but most of them are support other whales.

"Centralized decentralization" can still be targeted.

And this is what Hive actually is. It is centralized around the whales in multiple ways. The most known thing is mentioned above, plus there is the also well known thing called the downvote abuse, and even many of the smaller accounts focus on the whales (trying to catch their attention to get one or more upvotes from them) instead of supporting each other.

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In this recent report you can see the distribution of Hive Power (aka staked Hive) - the whales hold 47%, and all the other users combined hold 53%. You can also see that there are 37 whales. How decentralized or centralized would you consider this kind of distribution?

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How decentralized or centralized would you consider this kind of distribution?

Then looks like the whales nowadays hold almost the half of the Hive Power distribution. Considering/taking into account the fact that there are plankton/redfish, minnows, dolphins and orcas, and the majority of the users are belong to the plankton/redfish group, I think that this is very much centralized.

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To decentralize hive look at @lasseelhers and how he got downvoted by a whake but he has his own side chain and front end lol its like that's the secret to decentralized hive... decentralized hive engine and finding ways to connect golos steem eos telos and hive all together in one edenos chain of chains

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(Edited)

Even if u don't like Lasse lol its like fun to watch whale wars and ways people get around censorship by downvotes even if the person is someone u wanna hate ... in America we fight for the rights even of nazis and terrorists lol right? Lol

Ok anyways what I mean is we need to have competing political views like democrats and Republicans on chains that are connected under @challengedac and military statlink ethereum telos evm smart contracts that EMP cities that misbeehive

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There are few people (whales) instead, who basically controls the 80% (maybe more) of the distribution.

You are allowing your bias to taint your view of things. There is no single entity that has more than 5% of the total.

Yes there are Whales but there are also a number of them. Compare that with Vitalik and the Ethereum foundation which control more than 40% of the distribution.

Or Steemit Incs ninja mined on Steem that accounted for like 30%.

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The founder's token with steem was always going to be a problem and we saw how Ned Cashed in on that to totally centralise or ruin the system. The fact that hive is spread around so many wallets gives the community equal consensus, it's why decentralised cannot be ruined.
We're not there with hive, yeah, but we're doing a lot of things right.

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Getting rid of the Founder's stake was a big step in the right direction. It took a large percentage of the stake and put it towards community development.

That put the largest stakeholder at 5% (maybe even less).

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Yep, run a mile from any form any point of centralization.

He has stated that terraform labs basically plans to close and turn control over to a dao eventually but i think this sounds like pressing a magic decentralize button. I don't think it's that simple.
When we forked out the founder stake it certainly wasn't a painless process.
We shall see i guess...

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When we forked out the founder stake it certainly wasn't a painless process.
We shall see i guess...

I have a feeling there is a difference between forking (which creates something new) and simply closing something down to get away from regulation. I would imagine the people involved would also have to stop coding the project to truly claim they "closed down".

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I really didn't understand the proposal system and first and I still don't visit that page nearly as much as I should, but in respect to this it makes a whole lot of sense. It's pretty cool that anyone with an idea, skills, and funding can bring something to life on the Hive blockchain.

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I am looking forward to the HAF rolling out and seeing what other development takes place.

That could be a game changer from what some of those with technical expertise tell me.

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Decentralized systems in the Blockchain world is slowly becoming a paradox; if you want mainstream adoption, then there must be a face, and if there's a face, you must adhere to governments rules/regulations or they come after you, and if you adhere to governments rules/regulations, then it's no longer a decentralized system!

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Who is the face with Metamask? Uniswap?

I dont believe there are "faces" behind those projects yet they appear to be "crypt households names".

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Exactly, that's why it would be difficult for any government to subject them to regulations or sanctions

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Terra is definitely a lesson for most people and I still think we aren't decentralized enough. While HIVE itself is decentralized, there is a lot of centralization still in the development and other aspects of HIVE.

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There is still a lot that is centralized although much of that is second layer. But it is something that all projects need to keep pushing forward and spreading things out.

It is a great lesson. The answer is always more activity going in different directions.

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Acentralization asymmetric centralization between centralized and decentralized but what else there's gotta be some z axis zcentralization like controlled from a higher dimension

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Wow, that’s some serious shit. Hope that a lesson is being learned and corrected for future tokens. Go Hive

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We all just keep doing what we can to spread things out as much as possible.

Everything that we do as individuals on Hive helps things along.

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I currently work with a company that's willing to offer this sort of decentralized centralized system. I think it comes with its perks when you're a part of the team but as a user, you still have your limitations but just not as much as you do on regular social media.

I've tried, with my knowledge of Hive, to help them make the system less constricting but based on the obvious nature of what the company is about, they still have to enforce certain rules.

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I currently work with a company that's willing to offer this sort of decentralized centralized system.

With a company it is very hard to develop a decentralized system. The tendency is to give oneself a large stake.

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I honestly still can’t wrap my head around centralized decentralized organization. You can’t be both, you are either centralized or decentralized.

My opinion though, I stand corrected.

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I love it! I'm really happy to be a small part of Hive. I didn't even know it was so decentralized. Neat!

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I find in this article the answers to some thoughts that I was having about centralized companies offering products/tokens that they're saying are decentralized.
My thoughts were if they develop these platforms through their centralized companies then don't that make their platform centralized.

I live in the USA so this is of concern to me, as when tax time roll around. Does my crypto becomes taxable even though I have not turned it into USD? I did taxes for many years and crypto opens up a whole new thought for tax situations. I'm studying more about this but find myself with more qurstions then answers.

Back on topic, centralized decentralized does not make sense to me. if the company is centralized, I think of there offerings as centralized even if their platform is supposed to be decentralized.

The money their investing has to be accounted for, so they can't hide it in decentralization.

!BEER

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Github is a great tool for open source projects, but comes with a problem: developers are registered to github, so regulators/investigators/etc can reach real world people. They can be devs or project owners and they can be forced to cooperate in disabling said repo.

Trickle down investigation: If you cant find a company, you will go after those who you can find.

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