Cryptocurrency Paradox: Why the Ideal of Decentralization Falls into the Dilemma of Rampant Malfeasance

CN
4 hours ago

The chaos and lack of innovation in the crypto world raise the question: Are we making substantial progress towards an ideal future?

Written by: Brook

Translated by: Elaine, Sissi, Leia, TEAO

Introduction:

The chaos and lack of innovation in the crypto world raise the question: Are we making substantial progress towards an ideal future? The preface of "The Protocol Revolution and DigiLaw Engineering" explores the essence of the crypto world, the bottlenecks in its development, and the infinite possibilities for future construction from a systematic perspective, providing important insights for understanding the true nature of this new realm.

This article is the fourth in a series of preface content, with more Chinese translations to be released soon, so please stay tuned.

Crypto Paradox: Cannot Do Evil, Yet Full of Malice

Why is wrongdoing so rampant and persistent in the crypto world?

Despite the crypto world having developed for over a decade, issues of chaos and disorder remain severe. It is often attributed to the notion that "the emergence of any new financial market will be accompanied by various problems." However, behind this explanation lies a very contradictory point, which I call the "crypto paradox": the original intention of the crypto world was to build a new system from "Don't be evil" to "Can't be evil" through blockchain technology and decentralization, yet it has now fallen into the absurd predicament of "widespread wrongdoing." This inevitably raises the question of whether the wrongdoing in today's crypto world has some special characteristics.

Extreme rhetoric often attracts followers more easily because it simplifies complexity and reinforces emotional identification, causing rational voices to be quickly drowned out by the noise of the mob. To better understand the dilemma of the "crypto paradox," we must gradually explore the chain of causes behind it.

Information Barriers and Information Fog

In analyzing these causes, it is not difficult to find that the tearing of cognition and blind obedience in behavior stem from information barriers and information fog.

For bystanders, they are unaware of the earth-shattering changes happening in the crypto world, only occasionally hearing a few dangerous messages about it from others. They refuse to accept any objective reports, building a solid "information barrier" for themselves with stereotypes.

For participants in the crypto world, obtaining real and valuable information is also not easy. Although the internet has given everyone unprecedented access to information, it has also brought about issues of information fragmentation, repetition, and noise. Especially in the emerging field of crypto, various opinions and theories have sprung up like mushrooms after rain, but truly deep and forward-looking thinking is rare. Moreover, the market is flooded with a mix of true and false information, further exacerbating the chaos of information. Experienced crypto participants know that only one in a thousand projects and pieces of information in the crypto world is truly valuable. Therefore, the vast majority of participants are trapped in the "information fog," unable to have a clear and comprehensive understanding of the crypto world, and can only follow blindly.

Fraud, Speculation, and the Open Casino

At the same time, this information barrier and information fog are further reinforced by rampant fraud and speculation.

Some criminals in the crypto market seize the greed inherent in participants, using information asymmetry to set up numerous seemingly flawless frauds and Ponzi schemes in the "open casino," leading a speculative drama that claims to offer "financial freedom." They continuously flood the market with a large amount of "carefully packaged" distorted information, step by step reinforcing the information fog and facilitating the next act of wrongdoing. The crypto ecosystem seems to be trapped in an unsolvable vicious cycle. It is worth noting that fraud and scams are purely evil acts that should not exist, but I do not want to completely deny speculation. As Matt Huang said, "The speculative frenzy around cryptocurrencies can attract settlers and accelerate the catalysis of the infrastructure needed for the crypto planet to evolve into a prosperous crypto civilization." Speculation provides the funding, talent, infrastructure, and academic research necessary for the development of the crypto world, similar to many significant technological changes in history that were accompanied by asset bubbles. However, once driven by "greed" or unable to see the true nature of projects, speculating in vaporware and Ponzi schemes, while there is a certain probability of profit, often disrupts market order, forces the industry backward, and pushes the crypto world towards becoming a "breeding ground for evil."

The Dark Side of Token Abuse in Centralized Projects

The rampant behavior of fraud and speculation actually stems from the abuse of tokens in centralized projects.

Tokens are a double-edged sword; only in decentralized projects can tokens better promote comprehensive value creation. However, many project teams treat the crypto world as a "decentralized theater." They wear the mask of "decentralization" while secretly engaging in highly centralized operations. Once tokens are issued, it means that the crypto protocol and project involve public interests and there is a possibility of exploiting information gaps for wrongdoing, which should be regulated like traditional stocks. However, they claim that the project is "decentralized" and should not be subject to government regulation but rather community oversight. Yet, the current community lacks sufficient technology and methods to achieve effective regulation. This "regulatory gap" allows certain centralized project teams to continuously exploit tokens from the very beginning, amplifying the space for wrongdoing, using the story of decentralization to attract the ignorant or speculators, staging dramas of fraud and speculation.

Technology and Mechanism: Dual Challenges

The rampant issuance of tokens in centralized projects without regulation is the root cause of the "evil" in the crypto world.

This root cause exists for at least two reasons related to "technology" and "mechanism." From a technological perspective, the tech stack of the crypto world has yet to break through the limitations of the "impossible triangle," unable to create cryptocurrencies or blockchain systems that combine security, decentralization, and scalability; from a mechanism perspective, on one hand, the imperfection of mechanisms provides opportunities for human malice, and on the other hand, the complexity of the current ecosystem means that our research on mechanisms and the talent pool is still insufficient to support the construction of "skyscrapers." However, many projects, for various reasons, claim they want to build "decentralized automated skyscrapers." Yet, eight out of ten of these are centralized projects that, after being packaged well, build two floors and then run away; one is structurally unstable or collapses due to attacks; and one has an automated system that fails, leaving the building empty. Only the basic old smart contract protocols (like MakerDAO, AAVE, etc.), due to their decentralized value creation and simple yet robust protocol mechanisms, have been able to stand firm in the market's storms, weathering one bull and bear cycle after another. I am not advocating for "decentralization" alone; decentralization is a means, not an end. Without the premise of "decentralization," coupled with inadequate regulation, tokens are prone to amplify the evils caused by "centralization," which is undoubtedly a major challenge facing the crypto world today.

To be continued…

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