Decentralized Networks
Decentralized networks are systems which inherently have no central authority or governance. These systems often operate on individual computers spread across the globe, interconnected by the Internet, also known as peer-to-peer networking. These computers act in unison towards a common goal. [1]
Computers within decentralized networks are capable of operating independently of each other. As a result, the variety of services and applications built on decentralized networks are often difficult for third parties, such as governments, to shut down.
Contents
History
Notable applications
Decentralized finance (DeFi)
Decentralized finance applications use blockchain technology to provide access to financial instruments without the need of going through conventional financial intermediaries such as banks, brokerages, or exchanges. People may trade digital assets on these platforms much like in physical markets. However, DeFi allows for pseudo-anonymous cryptocurrency trading, market speculation based on derivates, borrowing and lending of cryptocurrencies.
Decentralized finance operates on smart contracts, which are essentially software made to run on decentralized networks such as the Ethereum blockchain. Since the blockchain is publicly accessible, anyone may audit the smart contracts used in DeFi to ensure it is not malicious. This presents a stark contrast from traditional financial institutions, which typically do not release the source code of banking software, but also presents risk in that security vulnerabilities present in smart contracts may be exploited for individual gain.
Cryptocurrency
Cryptocurrencies are digital assets designed to be virtual stores of value which are independent of centralized governance. Transactions involving cryptocurrencies are typically stored on a digital ledger, with the transactions being processed based on a consensus model within the cryptocurrency's decentralized network, with proof-of-work being the dominant protocol.
The first cryptocurrency, Bitcoin, was released in 2009, and as of January 2022 has a market capitalization of US$xxx billion. Numerous other cryptocurrencies, known as altcoins, have emerged since Bitcoin, seeking to provide additional or improved functionality over Bitcoin. Examples include Ethereum which has the capability of running smart contracts, Ripple which provides real-time settlements, and ZCash which provides true anonymity for transactions.
Cryptocurrencies operate on a consensus model to decide parameters of the system, such as how often new currency is created and how much is created. The decentralized network of users, each have a proportional share in deciding the consensus by proxy of their computing resources, or ownership of the currency. Cryptocurrencies are defined by the parameters of the network which has majority consensus, so any diverging networks would typically cease to be recognized by the community and thus lose value. Occasionally, such as in the case of the Ethereum and Ethereum Classic networks, the consensus diverges but both are still recognized as valid networks and retain some value, such an event is known as a chain split.
File sharing networks
Decentralized networks can be used to run file sharing services which are immensely redundant and thus provide high availability. The essential concept behind these networks is that many computers each store a copy of a file, and transmit it (or a part thereof) to other computers which request the same file.
BitTorrent
BitTorrent is a peer-to-peer file sharing protocol which allows for electronic data distribution over a decentralized network. The protocol is designed such that it reduces the computing resources needed to distribute large files. Files are segmented, then distributed to different computers which then simultaneously upload segments others need and download segments it needs from other computers. Doing so reduces the impact on global internet traffic, as users may download files from a more local source rather than a server located in distant geographic regions.
In 2019, the BitTorrent protocol accounted for 2.46% of downstream, and 27.58% of upstream internet traffic. [2]
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InterPlanetary File System (IPFS)
IPFS is a peer-to-peer decentralized network used to preserve and share data in a distributed file system. The data stored on it is duplicated across several computers on the network, so if one computer goes offline, the data is still accessible. It is designed as an easy to use, global store of information, with a defined naming scheme, IPNS, to uniquely locate items by.[3] It has been used for archival efforts such as for the Genesis Library, which archives books and journals.[4] Similar to BitTorrent, users have the option of preserving media it accesses and redistributing it to others.
Onion Routing
Onion routing is a communication protocol used to communicate anonymously and securely on computer networks, utilizing a decentralized onion network. Instead of communicating directly between two computers, onion routing encapsulates the data in several layers of encryption, and passes it on through a series of computers on the onion network. As the data transits through each computer on the way to its destination, a layer of the encryption is 'peeled' away, revealing the next destination of the data. This ensures the intermediary computers do not simultaneously know the initial source and the final destination of the data it is transmitting, protecting the anonymity of the sender from the intermediaries. [5]
Tor and the Dark Web
Tor, which is an abbreviation of The Onion Router, is a free, open-source implementation of onion routing. For ease of use, Tor has been implemented into a web browser based on Chromium, the Tor Browser. It allows users to visit internet websites anonymously, and prevents eavesdropping by third parties. Content which is region locked, or blocked by local governments can also be accessed through the use of Tor.
The use of a Tor-enabled network also allows users to access the Dark Web, a collection of websites not normally accessible via the Internet. These websites are hosted on servers whose physical locations are effectively hidden due to onion routing.
Security concerns
Ethical concerns
Traceability
The anonymity provided by decentralized financial platforms prevents value transactions from being tracked. KYC/AML laws, which would typically apply to conventional financial institutions, do not apply to these platforms. In addition, even though many cryptocurrency transactions are publicly viewable, there exists cryptocurrency shuffling protocols which allow users to hide their transactions by pooling multiple users' holdings into a shared account then splitting it in small amounts.[6] Such protocols significantly hinder third parties' abilities to trace the exchange of cryptocurrency between people, making it difficult to tie a particular transaction with the identities of the people involved. Thus, decentralized finance has become an ideal utility for illicit activities.
In 2017, it was estimated that bitcoin was involved in around $76 billion worth of illegal transactions, and that a quarter of bitcoin users were partaking in illegal activities.[7] Bitcoin enabled anonymous payments for dark web marketplaces, and became crucial to their operators' evasion of law enforcement. In the case of Silk Road, a marketplace which sold and shipped marijuana, LSD, and other drugs to US based customers.[8] Its operator, Ross Ulbricht, evaded authorities for two years before being arrested, resulting in Silk Road shutting down.[9]
Dark web marketplaces also pose a risk in that they lack accountability. The funds buyers use to pay for products is often held in escrow by the platform, which is then released to the seller upon successful a successful transaction. Disputes are resolved by marketplace administrators, and the losing side would have zero recourse as all parties remain anonymous. This leaves room for marketplace operators to perform "exit scams", whereby trading operations are ceased but escrow is not returned to their rightful owners. [7]
Energy consumption
Piracy
Permanence
Regulatory efforts
See also
References
- ↑ Kremenova, Iveta, and Milan Gajdos. "Decentralized networks: The future internet." Mobile Networks and Applications 24.6 (2019): 2016-2023.
- ↑ Marozzo, Fabrizio, Domenico Talia, and Paolo Trunfio. "A sleep‐and‐wake technique for reducing energy consumption in BitTorrent networks." Concurrency and Computation: Practice and Experience 32.14 (2020): e5723.
- ↑ https://ipfs.io/
- ↑ https://web.archive.org/web/20201127164841/http://freeread.org/ipfs/
- ↑ Syverson, Paul, D. Goldschlag, and M. Reed. "Onion routing for anonymous and private internet connections." Communications of the ACM 42.2 (1999): 5.
- ↑ Ruffing, Tim, Pedro Moreno-Sanchez, and Aniket Kate. "Coinshuffle: Practical decentralized coin mixing for bitcoin." European Symposium on Research in Computer Security. Springer, Cham, 2014.
- ↑ 7.0 7.1 Foley, Sean, Jonathan R. Karlsen, and Tālis J. Putniņš. "Sex, drugs, and bitcoin: How much illegal activity is financed through cryptocurrencies?." The Review of Financial Studies 32.5 (2019): 1798-1853.
- ↑ http://www.ibtimes.com/marijuana-lsd-now-illegal-drugs-delivered-your-doorstep-290021
- ↑ https://arstechnica.com/tech-policy/2013/10/how-the-feds-took-down-the-dread-pirate-roberts/
