Decentralization is in danger — We can fix it

Opinion by: Maxwell Sanchez, technical architecture lead at Hemi

One of the biggest challenges to Bitcoin’s rise to hegemony is complacency. The world’s first cryptocurrency is often portrayed as “perfect” from a technological and philosophical perspective, but this is a significant risk. While Bitcoin’s core remains essentially unaltered — and, without consensus, unalterable — the rise of layer-2 networks and new capabilities like “merged mining” threatens to undermine the security foundations of this transformational technology.

Merged mining, where miners simultaneously mine Bitcoin (BTC) and additional cryptocurrencies, has quickly proven to be a highly effective way of reusing Bitcoin’s hashrate to secure external systems. Still, it has created an environment where some Bitcoin miners control network sequencing and attack the remote chain while continuing to mine the cryptocurrency normally. 

Another potentially more widespread danger comes from using Bitcoin as a data availability (DA) layer in a way that directly creates maximal extractable value (MEV) on the Bitcoin base layer. That may incentivize Bitcoin miners to engage in “time bandit attacks” — where miners rewrite blockchain history to steal funds allocated by smart contracts in the past — and other ecosystem vulnerabilities that damage Bitcoin’s anti-censorship capabilities.

How can we solve the problems presented by new layer-2 functionalities without damaging the crucial capabilities they bring? The most compelling solution is the one that cleaves closest to Bitcoin’s founding philosophy: to realign incentives for network participants.

It’s not all doom and gloom. It is possible to inherit Bitcoin’s complete consensus security in a scalable manner without giving a subset of BTC miners undesirable control over the second layer. Bitcoin layer 2s can still leverage Bitcoin for DA without introducing MEV risks. Bitcoin layer 2s can contribute back to the layer 1 in a symbiotic manner by increasing the utility of Bitcoin-based assets and directly subsidizing the blockchain’s security budget in an incentive-aligned manner that strengthens the entire ecosystem.

With thoughtful design decisions and an open discussion around the nuances of different protocol architectures, we can ensure that layer 2s are part of the solution rather than potential sources of systemic risk.

Improve decentralization

As we’ve seen with some layer-2 solutions and altcoins, the drive for scalability and speed can sometimes come at the cost of centralization. To maintain strong censorship resistance, we need to encourage diverse node participation, resist pressure to centralize essential functions like sequencing or block production, and support the development of decentralized infrastructure. 

Recent: Uniswap sees record monthly volume on L2 as DeFi demand flows back

Bitcoin has set the standard for decentralization and censorship resistance. With over 15,000 reachable nodes spread across the globe, Bitcoin’s architecture makes it highly resilient to geographic or political censorship. Its open-source development model ensures no single entity can control the protocol’s evolution. Despite its energy intensity, the proof-of-work consensus mechanism was remarkably resistant to centralization over time in the face of growing adoption and external pressures.

Unfortunately, that resistance is beginning to fall. Merged mining and increasingly sophisticated layer-2 solutions have exposed numerous problems with the proof-of-work model, including weak subjectivity and an inherent vulnerability to censorship attacks. The answer is not to discard a system central to Bitcoin’s operation and philosophy but to use new methodologies and technologies to bolster decentralization. 

One solution that shows immense promise is the proof-of-proof (PoP) consensus protocol, which enables miners to independently publish data to the Bitcoin blockchain, thereby cutting off this attack vector.

Expand interoperability

While Bitcoin remains the leader in censorship resistance, its limited programmability has led to the rise of smart contract platforms like Ethereum. The traditional approach has been to develop robust and secure Bitcoin bridges. No matter how safe, an islanded network cannot reach its full potential in isolation. 

Through connecting networks, we can extend their capabilities and amplify their utility. Technologies like merged mining extend Bitcoin’s security to other chains and:

• Provide additional income streams for Bitcoin miners.
• Improve the long-term sustainability of the mining ecosystem.
• Enable new chains to bootstrap their security by tapping into Bitcoin’s established mining infrastructure.

It is not, however, a panacea because of the centralization vectors from merged mining alone. We need advanced solutions that combine this approach with additional security mechanisms to create a more interconnected and robust overall crypto ecosystem.

One promising approach is to embed a full Bitcoin node within an Ethereum Virtual Machine, which enables direct Bitcoin state awareness and interaction within an EVM-compatible environment. The result is a “supernetwork” that preserves Bitcoin’s censorship resistance while allowing the advanced functionality of smart contract platforms. That offers us the best of both worlds: Bitcoin’s unmatched security and Ethereum’s flexibility and developer ecosystem.

Improving privacy

Public blockchains derive strength from being open and verifiable, but users must understand that they expose financial data to anyone. This transparency can become a vulnerability when exploited by adversaries or overzealous regulators.

Blockchain ecosystems need to offer nuanced privacy options. These could include secret transactions that hide amounts, stealth addresses to prevent transaction linking, and zero-knowledge proofs for private yet verifiable interactions. The goal isn’t to create opaque systems but to empower users with granular control over their financial privacy.

This approach preserves the benefits of blockchain transparency where it matters most — in public institutions, charitable organizations, and businesses seeking to demonstrate their honest operations. It also protects individuals from the adverse effects of total financial exposure, such as targeted attacks, discrimination or unwarranted scrutiny.

Always be innovating

Bitcoin and the blockchain are things of technological and philosophical beauty. When they first burst into the world, they were so perfectly designed that it seemed they would underpin a centuries-long financial revolution without requiring the slightest modification. 

Let’s renew our focus on decentralization, interoperability, privacy, regulatory engagement, user experience and long-term security. That way, we can ensure that cryptocurrencies continue to provide a genuinely censorship-resistant alternative that is superior to traditional, centralized finance in every way.

Maxwell Sanchez is the technical architecture lead at Hemi. Previously, Maxwell co-founded and served as chief technology officer at VeriBlock.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Explore new destinations with ease using the Garmin Drive 52 GPS Navigator! With over 17,988 ratings and a solid 4.4/5-star rating, this GPS system has been a top choice for travelers. Over 500+ units were bought in the past month, all for only $144.99.

This 5″ GPS navigator comes with essential driver alerts, real-time travel data, and external memory storage. The simple on-screen menus and bright, easy-to-see maps make it easy to navigate wherever you are. Plus, it’s road trip-ready with The HISTORY Channel database, featuring notable historic sites and much more to enhance your journey.

Don’t miss out—get your hands on the Garmin Drive 52 today for a smoother ride ahead! Buy Now for $144.99 on Amazon!