Sergey Nazarov, co-founder of Chainlink, has reignited the longstanding debate on decentralization within the crypto industry.
According to Nazarov, the term “decentralization” is often misused to attract investment rather than to describe a network’s actual structure. During an interview with Decrypt, he argued that only three projects—Bitcoin, Ethereum, and Chainlink—can be considered meaningfully decentralized.
Nazarov’s comments come in the wake of recent security breaches in various crypto projects, including Celsius, Voyager, FTX, and Mixin Network. He refers to these incidents as examples of “decentralization theater,” where the term is used more as a marketing gimmick than a factual descriptor. Nazarov sees decentralization not just as a buzzword but as a critical security feature. He cites Chainlink’s four-year track record without hacks and the secure transfer of $8.5 trillion in value as evidence of the benefits of a decentralized system.
However, Ethereum, one of the projects Nazarov considers decentralized, is currently grappling with its own centralization issues. The Lido Finance cartel is perceived as a significant threat to Ethereum’s network. Despite this, Nazarov maintains that decentralization serves as a security mechanism, safeguarding the network from various vulnerabilities.
According to Decrypt, Chainlink itself has not been immune to scrutiny. Critics point out that the project’s price oracle has a 4-of-9 multi-signature access, which could have unintended consequences in the decentralized finance (DeFi) space. DeFi security expert Chris Blec expressed concerns about the lack of transparency regarding who controls these signatures. He emphasized that the potential for these signers to manipulate Ethereum’s price could pose a risk to DeFi protocols relying on Chainlink’s price feeds.
Nazarov also told Decrypt that he agrees with the idea that decentralization is a spectrum but accuses many blockchain projects of falsely presenting themselves as decentralized. He called for an end to the misuse of the term and urged both developers and consumers to focus on building and supporting systems that offer genuine security and reliability.
Yesterday, during an interview on CNBC’s Crypto World, Nazarov explained what can help prevent another crypto firm failure ahead of the trial of the bankrupt crypto exchange’s Co-Founder and former CEO Sam Bankman-Fried (SBF)
Nazarov emphasized that the collapse of FTX should not be viewed as a failure of blockchain technology. According to him, FTX was more of a traditional financial institution that happened to deal in crypto assets. The failure was due to mismanagement of assets by the institution, rather than any inherent flaw in blockchain systems.
Nazarov highlighted the importance of “proof of reserves” in the wake of the FTX collapse. Chainlabs is the largest provider of this service, which validates the balance sheet of financial entities dealing in crypto assets. Proof of reserves offers real-time, cryptographically verified information about an institution’s solvency, which is a significant step up from traditional annual audits.
While proof of reserves is crucial, Nazarov acknowledged that it only provides a snapshot of an entity’s financial health. He mentioned that the industry is moving towards other types of proofs like “proof of liabilities” and “proof of solvency” to offer a more comprehensive view of an institution’s financial standing.
Nazarov noted that although crypto crime has decreased, it is mainly because the industry’s growth has slowed down. He stressed the need for genuine decentralization to prevent hacks and scams. According to him, many platforms claim to be decentralized but are not, which makes them vulnerable to attacks.
When asked about the factors hindering mass adoption of crypto, Nazarov cited a combination of eroding trust due to institutional failures, security issues, and lack of regulatory clarity. He emphasized that the crypto industry is cyclical and that it’s crucial for the infrastructure to be robust enough to handle the next wave of interest and investment.