Let’s address the risks of decentralization

Here, decentralization enters the equation. While decentralization is the key value proposition of crypto because it empowers services normally facilitated by various intermediaries such as international transfers and decentralized trading of non-fungible tokens (NFTs), it is also a notable shortcoming of crypto. This is the case with decentralized exploits, as developers and users cannot recover funds when exploits occur, compared to a centralized system where the company behind can often reverse the transaction. This means that exploits and cyberattacks can have proportionally much worse consequences when dealing decentralized.

Does crypto learn from it?

Whenever an exploit takes place, the community often makes a u-turn and presents it as somewhat positive with the main argument being that the protocol in question alongside other protocols learn from the particular exploit to develop future-proof protocols. The learning view is likely true, however, imagine in how many ways various decentralized applications can be exploited, so to potentially develop safeguarded decentralized applications through a learning phase will not be a quick fix.

One might argue that decentralized applications will experience the same learning phase and development as e.g., crypto wallets. In the early days of Bitcoin, there were no great wallets, which meant that many Bitcoins were lost forever in the first years of its lifetime. At the time, it was likely hard to imagine that institutions would ever trust crypto companies to custody billions worth of value. This is not unimaginable anymore. Quite the contrary, it is the case today. As Søren Kierkegaard said: “Life can only be understood backwards, but it must be lived forwards”.

It is important to remember that the first decentralized applications launched in 2018, so it is somewhat of a new phenomenon. This means the industry is still quite early in its learning phase. Furthermore, over the past years, several consultancies have launched making audits in the code of decentralized applications, such as OpenZeppelin, which further enhances security. Besides doing audits, OpenZeppelin has released a framework of battle-tested smart contracts intended to be used by new decentralized applications. This effectively means that as the industry matures there will perchance be various frameworks and infrastructure to be leveraged in making applications more secure.

On the other hand, even if the industry can present a near-zero exploit risk in the future, the question is whether everyday people will trust decentralized applications with their history of exploits. Not to mention that the potential consequences of exploits are rapidly intensified upon increasing usage and value locked in decentralized applications. This may enforce tough regulation by regulators before the industry proves that it is safe to interact with.