‘ADA Is Extremely Centralized,’ Claims Founder and CIO of Cyber Capital

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As a long-term crypto investor with experience in following various blockchain projects closely, I find the ongoing debate within the Cardano community regarding the centralization implications of its “genesis keys” particularly intriguing. While it’s essential to maintain an objective perspective as an investor, I cannot help but express my concern about the potential centralization risks this issue poses for Cardano and its users.

A debate has been igniting among the Cardano community regarding the potential centralization issues surrounding their “genesis keys.” Today, Justin Bons, Founder and CIO of Cyber Capital, initiated this conversation on social media platform X, bringing attention to the control IOG, one of Cardano’s three research and development entities, holds over these keys.

Bons’ Critique of Cardano’s Centralization

Bons’ thread began with a stark assertion that Cardano (ADA) possesses “genesis keys,” a multi-signature setup that controls all protocol rules. He argued that ADA’s claim of being the “most decentralized” chain is contradicted by this centralized feature, as IOG controls five out of seven keys, allowing them to unilaterally change the protocol. Bons emphasized the irony in ADA’s claims of decentralization.

As a crypto investor, I’ve been following Bons closely, and in his latest post, he delved deeper into the significance of the keys he mentioned earlier. These keys bestow the power to make code modifications without requiring a hard fork. However, he issued a cautionary note. If IOG chooses to exercise this control, they could potentially halt the chain, manipulate emission schedules, or censor transactions. This degree of centralized authority over a Layer 1 blockchain is unprecedented and merits close attention from the community.

Bons identified the source of these keys to be the Shelley upgrade in 2020. At first, IOG didn’t possess complete control. However, one of the other key holders, Cardano Foundation (CF), transferred their control to IOG, bestowing them with full power. Bons voiced concerns over this setup, contending that even making IOG depend on the approval of just one out of two other entities was not sufficiently decentralized.

Recognizing Cardano’s strides towards on-chain governance through the Voltaire upgrade, Bons expressed concern that the genesis keys currently keep ADA decentralized in practice. In conclusion, he emphasized the significance of double-checking rather than blindly trusting these centralized arrangements.

Cardano YODA’s Response

Expert: In response to Bons’ statements, Cardano influencer “Cardano YODA” provided a thorough explanation intending to dispel any misunderstandings. He highlighted that for fundamental alterations in the Cardano system, approval from full node operators is crucial by adopting the updated client version. Cardano YODA emphasized that genesis keys serve as a mechanism to instigate a hard fork; however, they lack the power to initiate modifications without substantial community endorsement.

Yoda explained that the genesis keys are utilized for modifying protocol settings like staking rewards and block size with the consent of the community. He provided an illustration of a past event where a community vote led to reducing the minimum reward threshold from 340 ADA to 170 ADA, highlighting the importance of transparency in these procedures.

He championed the use of genesis keys as a versatile and intelligent approach, pointing out that they enable necessary modifications without requiring significant new coding, development, and testing. Moreover, YODA emphasized that genesis keys cannot suppress transactions, pilfer user funds, or halt consensus since these actions are safeguarded by users’ private keys.

Soon, the governance of Cardano will shift to the community’s hands. The genesis keys held by IOG, CF, and Emurgo will no longer be functional. In their place, decentralized representatives (DReps) will emerge, empowering more distributed decision-making processes.

Bons’ Rebuttal

In his answer, Bons showed gratitude for YODA’s comprehensive explanation yet remained firm on the matter of decentralization. He conceded that validators would need to update their clients with new versions but highlighted a key distinction: most blockchains schedule a fork to take effect at a predetermined block height, whereas Cardano relies on a centralized multi-signature trigger for activation.

Bons emphasized that genesis keys, which he had previously stated could not pilfer user funds, do carry the risk of rendering the capacity of ADA null. In essence, this would prevent all activity with the digital currency, acting as a formidable censorship tool. He expressed support for the ongoing push towards decentralization and looked forward to examining ADA’s on-chain governance once it is fully functional.

The Broader Implications

Yoda made a comparison between Cardano’s hard fork process and Bitcoin‘s, highlighting the resemblances in how adjustments are introduced and triggered. He emphasized that true decentralization is reflected by the quantity of individuals responsible for making decisions. In contrast to Bitcoin where consensus can be swayed by a few influential mining pools, Cardano boasts over hundreds of operators and validators, which Yoda considers as a stronger demonstration of decentralization.

The ongoing debate in the blockchain community highlights a significant dilemma: striking a harmonious balance between adaptability and decentralization. Genesis keys provide a convenient answer for protocol modifications; however, their centralized essence stirs apprehensions. Cardano’s determination to shift towards a more autonomous governance structure is commendable, but the community must stay alert to ensure these shifts genuinely foster decentralization.

Cardano’s “genesis keys” give IOG exclusive control over the protocol’s rules, making it highly centralized. Of the seven keys that manage these rules, IOG holds five, enabling them to unilaterally make changes. This contrasts with ADA‘s self-proclaimed status as the “most decentralized” blockchain.— Justin Bons (@Justin_Bons) May 20, 2024

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2024-05-20 23:35