The Not So Good
51% Attacks and Double Spending
As I mentioned before, blockchains are just nodes (people’s computers) working together to create a network. One of the beauties of these nodes is that their owners are anonymous. Unfortunately…. this anonymity can also be incredibly detrimental. A 51% attack is when one person or entity gains control of a majority (hence the name fifty one percent) of a blockchain network.
One of the worst case scenarios of a 51% attack is double spending, when a unit of digital currency is spent twice. This would equate to someone buying their groceries at the store with a $20 US bill, then using their newfound power over the US currency to state that they are allowed to use that same $20 bill to buy whatever they want again.
Theoretically, this can happen within any blockchain network as long as the defined majority of the nodes approve of the transaction. 51% attacks often result in an attempt to double-spend, because the ‘illegal’ transaction can easily gain a majority approval (since the majority belongs to the person attempting to make the ‘illegal’ transaction).
I’m using quotes around ‘illegal’ as a reminder that illegality doesn’t really exist for a lawless, ungoverned entity.
Last year a 51% attack on ZenCash caused $550,000 to be double-spent. An attack on Bitcoin Gold lost $18 Million. Actually, 2018 was one of the worst blockchain attack years in history. These attacks are a double edged sword, because as the public becomes informed of an attack, the targeted cryptocurrency becomes mentally devalued.
This is an important concept because it highlights the fact that cryptocurrencies are only as valuable as humans believe them to be. (For more on this topic, I highly recommend reading the amazing Yuval Noah Harari’s thoughts on how currency, just like religion, only works through mutual trust).
But Blockchain Breeds Credibility
The benefits of mental devaluation extend even further than hindering 51% attacks. The subjective monetary value of cryptocurrencies make blockchain technology less prone to corruption, because it runs on credibility. As I said earlier, a bank can make any changes to its own ledger or be at risk for hacked changes to its ledger without any of the bank’s users becoming aware.
In the case of blockchain, humans only value cryptocurrency if they trust that the transactions are true.
“Blockchain provided the answer to digital trust because it records important information in a public space and doesn’t allow anyone to remove it. It’s transparent, time-stamped and decentralized.”?—?Bernard Marr
Since blockchains publicly share all transactions with the nodes in the network, transparency breeds credibility; which directly gives cryptocurrencies their monetary value. Corruption is disincentivized in a decentralized network.
An Ungoverned System Breeds Misuse
While it is very good that the concept of blockchain hinders corruption, there are some more important ethical concerns accompanying this technology that I can’t leave unaddressed.
The majority of these concerns stem from the fact that no one governs the networks. In the same way that the value of stocks change the more they are traded, as more units of cryptocurrency are traded, the value of that cryptocurrency increases.
It is possible that Bitcoin’s early price increases (early trades) were almost exclusively guided by criminal activity.
Since every transaction in a network is anonymous and cryptocurrency isn’t governed by anyone, blockchain has become infamous for aiding in money laundering, selling weapons or drugs, and other traditionally black-market-aided transactions. Many have become aware of the need for the potential governing of blockchain networks, but the inherent distributed nature of the system disallows any centralized regulation.
Why not just try to regulate it then?
If only it were that easy. Even if blockchain tech was modified to allow for centralized regulation… there would still be problems. If all countries have different approaches to titles, ownership, contracts, and transactions, how can a unified set of rules or laws be brought to fruition? If any disputes over previous transactions are made, who is the governing entity responsible for resolving this conflict? Since blockchains are immutable, how would societies handle a blockchain that adheres to modern regulations but fails to comply to unknown future regulations?