Known Problems
Honest analysis of blockchain limitations and trade-offs.
No System Is Perfect
Decentralization is an ideal that will likely never be fully achieved. Every system has trade-offs. The question is not "Is it perfect?" but "Are the problems known and honestly communicated?"
This page documents known problems in blockchain systems and discusses possible solutions - without illusions.
1. Development Centralization
Problem
Few maintainers control code changes. They set rules, review code, decide what gets merged. Often funded by a handful of organizations.
Possible Approach
Protocol rules instead of human governance. Mathematical constraints that apply automatically. No votes, no gatekeepers.
Honest limitation: Someone has to write the initial code. Someone sets checkpoints. Complete development decentralization is probably impossible. The goal is minimization, not elimination.
2. Mining Pool Centralization
Problem
Extreme variance in solo mining. A solo miner in large networks waits years for a block. This drives miners into pools. Pools centralize the network.
Possible Approach
Share-based mining in the protocol. Rewards proportional to all who prove work - not just block finders. A decentralized pool directly in the protocol. Result: Small rewards regularly instead of large rewards rarely.
Honest limitation: Shifts the problem, doesn't solve it completely. The question becomes "Who controls hashrate?" instead of "Who controls pools?"
3. Hardware Centralization
Problem
Specialized hardware (ASICs) displaces normal users. Whoever controls chip production controls mining.
Possible Approach
Dynamic memory scaling. Memory requirements increase automatically over time. Specialized hardware becomes obsolete after months. Consumer hardware remains usable.
Honest limitation: Every profitable activity attracts specialization. The goal is not "no ASICs" but "ASICs have no lasting advantage". GPU mining remains possible. Specialization will come - it just becomes expensive and short-lived.
4. Long-Term Security Funding
Problem
Block rewards halve toward zero. Long-term security then depends on transaction fees - unpredictable, possibly insufficient.
Possible Approach
Tail emission. After the regular emission phase, a minimal, perpetual reward. Guarantees miner incentives without dependence on fee volatility.
Honest limitation: No hard cap anymore. Trade-off between absolute scarcity and long-term security.
5. Quantum Vulnerability
Problem
Shor's algorithm breaks elliptic curve cryptography (ECDSA, Schnorr). Grover's algorithm weakens hash functions quadratically. Signatures are the critical vulnerability - not hashes.
Possible Approach
Post-quantum signatures (SPHINCS+, Dilithium, FALCON). SHA3-512 for hash functions. Lattice-based cryptography for key exchange.
Honest limitation: Current estimates give decades of buffer. But estimates have been wrong before. Migration is complex.
6. Reorg & Double-Spend Attacks
Problem
Chain reorganizations enable double-spends. Only probabilistic security.
Possible Approaches
- Reward Vesting: Rewards locked over time. On reorg, attacker loses unvested rewards.
- Reorg Penalty: Quadratically scaling costs for deep reorgs.
- Absolute Finality: After X time, nodes reject reorgs.
Honest limitation: 51% attacks still win. Math can only make them expensive, not prevent them. Absolute finality means: Long network partitions split the chain permanently. That's a trade-off, not a bug.
7. Funding Dependency
Problem
Development is funded by few organizations. Indirect influence is inevitable.
Possible Approach
Diversified funding structures. No single organization should dominate.
Honest limitation: Someone has to pay. The only question is who and under what conditions.
8. Liquid Staking Centralization
Problem
Liquid staking protocols concentrate stake. Lido controls ~30% of staked ETH. Users delegate for convenience, creating new centralization vectors in PoS systems.
Possible Approach
Self-limiting mechanisms. Stake caps. Distributed validator technology (DVT). Protocol-level incentives against concentration.
Honest limitation: Convenience wins. Users prefer liquid tokens over locked stake. Market forces favor concentration.
9. MEV (Maximal Extractable Value)
Problem
Block producers extract value by reordering transactions. Sophisticated actors centralize block building. Creates validator centralization pressure.
Possible Approach
Proposer-Builder Separation (PBS). Encrypted mempools. Fair ordering protocols. MEV redistribution to users.
Honest limitation: MEV is inherent to ordering transactions. Solutions redistribute or obscure it, but don't eliminate it.
10. Geographic Centralization
Problem
Nodes, miners, and validators concentrate in specific jurisdictions. China mining ban (2021) showed regulatory risk. Single-country concentration enables coordinated shutdown.
Possible Approach
Incentivize geographic distribution. Penalize concentration. Make node operation accessible in more jurisdictions.
Honest limitation: Cheap electricity and friendly regulation attract concentration. Market forces work against distribution.
11. RPC/Infrastructure Centralization
Problem
Most users access blockchains through centralized RPC providers (Infura, Alchemy). Few run their own nodes. Creates single points of failure and censorship vectors.
Possible Approach
Light clients. Decentralized RPC networks. Make node operation easier. Reduce hardware requirements for verification.
Honest limitation: Running nodes is inconvenient. Centralized services offer better UX. Convenience wins.
12. Oracle Centralization
Problem
Smart contracts need external data. Chainlink dominates oracle infrastructure. Oracle failure = DeFi failure. Single provider creates systemic risk.
Possible Approach
Multiple oracle sources. On-chain price discovery (AMM-based). Decentralized oracle networks with economic guarantees.
Honest limitation: External data is inherently trust-dependent. The oracle problem has no perfect solution.
13. Social Layer Attacks
Problem
Governance capture through social engineering. Influencer manipulation. Community splits (BTC/BCH, ETH/ETC). Coordinated narrative attacks.
Possible Approach
Minimize governance surface. Protocol rules over social consensus. Reduce attack surface by reducing decisions that require coordination.
Honest limitation: Humans run the systems. Social attacks are always possible. The goal is resilience, not immunity.
14. Collateral Contagion
Problem
"Decentralized" protocols inherit centralization from their collateral. DAI is ~40% backed by USDC. Circle freezes USDC → DAI destabilizes. Wrapped assets (WBTC, WETH) depend on custodians.
Possible Approach
Native collateral only (ETH, not USDC). Diversified collateral baskets. Transparent collateral composition. Risk-weighted scoring.
Honest limitation: Users want stability and liquidity. Centralized collateral is often more liquid. Market pressure favors convenience over purity.
Conclusion
Perfect decentralization does not exist. Every solution creates new trade-offs. The difference between good and bad systems is not perfection - but honesty about their own limitations.