Author: Omid Malekan, former Citigroup crypto expert, Columbia Business School professor
Translation: Jiahuan, ChainCatcher
In this world full of power and greed, people have tried all kinds of blockchains. No one thinks Ethereum is perfect and omnipotent. It can even be said that Ethereum is the worst blockchain—except that all other blockchains are worse.
I spend a lot of time arguing with people in the crypto industry, some of whom are friends. Our biggest disagreement is: how important is decentralization in core protocol design?
They think it's just one of many important features; I think it's the only one that really matters. They think scaling is more important; I think it's a side issue. They think success requires business development and partnerships; I don't. They think more money helps a protocol succeed; I think too much money is doomed to fail. They think permissioned networks can work; I just smile.
Most importantly, they think my views are too idealistic and impractical—that's where our real disagreement lies. I'm not some naive person who wistfully wishes for a rosy future.
On the contrary, I'm a cynic. I've spent a lot of time studying history, how human institutions evolve. I've also seen firsthand what powerful organizations are capable of to protect their power and profits.
My view is actually closer to Machiavelli (meaning not relying on institutions to act conscientiously, but starting from the actual operation of power and interests). If you truly understand how the real world works, you'll realize that the real idealists are precisely those who are fooled by hollow press releases like "tokenization on a corporate database."
To believe their story, you also have to believe that: for-profit companies care more about innovation than their own profits; the "innovator's dilemma" doesn't apply to platform technologies; executives who are comfortable with the status quo and earn seven-figure salaries are all eager to see it disrupted.
I don't believe that. I believe in the power of corporate inertia, and that only the most decentralized crypto systems can achieve "escape velocity." Everything else will be co-opted, corrupted, until it becomes useless.
A large enough network is always incentivized to corrupt itself
Believing in crypto is essentially believing in the power of incentives. Any blockchain that attracts millions of users and settles trillions in value will forever incentivize people to corrupt it. For the largest companies (even governments), it would be foolish not to try to hijack it. For some, ignoring it might even be a matter of life and death.
Ten years ago they said Bitcoin was a scam; today they tell you tokenization only works if it's done by their rules—it's the same logic. This is also very Machiavellian: first try to stop it; if you can't, co-opt it. The only crypto systems that have a chance to survive such threats are those that have deliberately remained open and neutral from day one.
When we talk about protocol security, we often only consider external attacks, like 51% reorganization attacks. But internal takeovers are equally, if not more, concerning, especially now that the oldest protocols are already quite robust.
Almost every mainstream traditional financial exchange, settlement system, and even social media platform still in operation today has a history of internal takeover. Visa and Mastercard are like that: they started as non-profit consortium networks, similar to today's tokenized consortium chains, but gradually turned into money-printing machines. Google is also like that, from initially opposing advertising as a business model for search to becoming the most powerful advertising company in history.
This is the trajectory of "platform corruption," the inevitable result of the S-curve that well-known VCs once believed in.
For a Layer-1 blockchain, the risk of being taken over is greater than for any card organization, clearing house, or social platform. The reason is that a programmable settlement system capable of carrying all types of assets has a potential market size larger than most existing networks combined.
A general-purpose L1 can handle payments, securities settlement, social networking, gaming, art, ticketing, identity, and more. There are simply too many things that can be "corrupted."
Who Is Truly Naive
From this perspective, the truly naive are those who believe in permissioned networks. Those networks are essentially databases that can be dismantled at the push of a button.
Equally naive are those who believe in "so-called permissionless Layer-1s with highly centralized validators" and those who believe in "so-called public Layer-2s with no proof and a single sequencer." Believing in such systems is equivalent to believing that individuals cannot be corrupted, institutions never do evil, and governments always exercise self-restraint.
To put it more concretely, it's believing that Visa wants Mastercard to succeed.
And today, the takeover scenarios I'm describing are not hypothetical. Take the leading provider in the "database controlled by a button" space: the CEO of this company is ambitiously aiming to "make existing giants and intermediaries great again."
In a recent interview, he (referring to the Digital Asset CEO) talked at length about how running a closed enterprise network with Proof of Authority (PoA) is fairer than running an open network with Proof of Stake (PoS). What's his logic? Joining Ethereum consensus costs money (about $60,000 at today's prices), while joining his network only requires potential participants to "prove their value" to existing members.
Coincidentally, Visa is already a participant in this network, while Mastercard is not. How does a company "prove its value" to its biggest competitor? Or, going further: what if Visa and Mastercard collude, both join the network, and then never let any other competitor in, permanently cementing their duopoly at the top of Western payments?
How does a fintech company aiming to completely disrupt payments "prove its value" to this trillion-dollar behemoth?
By politely asking?
If You Were the CEO, What Would You Do
If you think I'm being too harsh, it only means you haven't seriously studied the history of payment and clearing systems. But you don't have to take my word for it. Ask small and medium-sized banks and credit unions in the US how they view The Clearing House, a clearing institution controlled by large commercial banks; or ask banks that don't hold equity in EWS how they view Zelle, the instant payment network operated by EWS.
Then ask Robinhood how it viewed the National Securities Clearing Corporation (NSCC) during the meme stock frenzy; ask Custodia, a digital asset bank that sued the Federal Reserve after its Fed account application was denied, how it views the Fed; and ask fintech companies how they view FedNow, the instant payment system launched by the Federal Reserve.
Now, imagine yourself as the CEO of a highly profitable payment company with high take rates and high margins. You've gotten where you are because you understand how important it is to "control the network"—it's practically ingrained in your DNA.
Before crypto, all settlement systems were either operated by existing giants or by governments (which were in turn influenced by these giants). Now, something called a "public permissionless blockchain" has emerged, and some extremely smart people tell you: this is a settlement system that no one can control but everyone can use. "Everyone" includes your biggest competitors and any startup that sees your profit margins as its opportunity.
Quiz for you, smart person: what would you do? Would you embrace it with open arms?
Or would you seek some "hybrid" alternative: a solution that claims to offer some benefits of blockchain while allowing you to retain control and pricing power? Then instruct your PR team to craft a compelling narrative about regulation, liability, and illegal use?
The answer is self-evident. From this perspective, the takeover scenarios I've described are not particularly "Machiavellian"; they are merely standard operating procedure. Competitive companies will seize any advantage they can, and "owning" (or at least "controlling") the means of settlement is the ultimate advantage.
Of course, they will try to take over any network that allows them to, and use fabricated accusations and legal pressure to undermine those that do not.
But this game plan won't work in the long run
To be clear, none of these tactics will succeed in the long term. Not because these companies can't play the game well, but because "pseudo-decentralization" is objectively inferior to the status quo. It is neither as efficient as the systems traditional finance runs today nor as secure as true decentralization.
On corporate networks, cryptography is a burden, and consensus is a farce. Fake decentralization works only in VC roadshows and conference panels, but fails in the real world.
Through my Machiavellian lens, I can't help but wonder: Do the banks and brokerages playing this game already know this? If they do, then this embrace of "fake crypto" is a clever smokescreen to slow progress and influence lawmakers.
From a human perspective, this strategy is understandable. These companies are run by older individuals who are closer to the end of their careers than the beginning. They have reputations to protect and lavish Hamptons lifestyles to sustain.
But their delaying tactics will only work for so long. The world will eventually find the most decentralized system, just as water eventually flows to the lowest point. Much of the profit in the centralized world comes from the delays and frictions of old ways, and those profits are opportunities for others.
This too is Machiavellian. A fully decentralized settlement system is a powerful weapon against competitors, especially when you lack their legacy technology and business models. Combined with declining trust in existing institutions, this process will only accelerate.
Water will eventually flow to the lowest point, and assets will eventually flow to the safest infrastructure. That is the Nash equilibrium of the world we live in. So it's best to be a realist, like me.
Decentralized systems like Ethereum have many flaws; resisting capture is expensive and troublesome. But they are still better than the corporate and enterprise solutions people talk about today. Many idealists will have to learn this lesson at a painful cost.
