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A Closer Look at Decentralization

If there is one word that gets thrown around a lot in crypto discourse, it is “decentralization”.

It was in the second line that Satoshi Nakamoto used to introduce bitcoin in his p2pfoundation post. We even hosted a conference earlier this year in Singapore around the theme.

Decentralization is arguably the most important tenet on which public blockchains are built. Distributing power to multiple nodes, as opposed to having a single centralized authority making decisions, makes the network more censorship-resistant and by extension more trustworthy.

Decentralization, combined with the austere relentlessness of cryptography, enables trustless, distributed computing and this is at the heart of the design of a blockchain.

Every blockchain project goes to great lengths to talk about how decentralized they are as compared to their rivals, although, they are rarely ever transparent about the exact level of decentralization. One reason why many people use the term ‘decentralization’ loosely is because we do not have a universal definition of what decentralization means or have an accurate metric to quantify it. First and foremost, decentralization is a relative metric and absolute decentralization can never be achieved. True decentralization almost always implies that there is a compromise to be made on at least one of the two orthogonal attributes, either scalability or governance. We have explored this to some length in two previous posts here and here.

Decentralization has many definitions. At least in the context of public blockchains, it can mean the distribution of wealth, it can refer to a diversity in consensus determination, or it can refer to distributed decision making in pushing code updates to the protocol. There have also been some attempts to apply traditional economic measures such as Lorenz curves and Gini coefficients, to the various subsystems that make up a blockchain, such as mining, client codebase, developer volumes, ownership concentration in addresses, geographical distribution of nodes and volume across exchanges.Below we compare how each of the top 10 protocols fare on the various aspects that denote decentralization.

Figure 1: # of Entities in Control of >50% of mining/staking power

Figure 2: % of supply held by top 100 accounts

Figure 3: # of client codebases that account for >90% of nodes

(XRP – Ripple data is not available. By most measures that we have described above, XRP would be completely centralized)

Meanwhile in Crypto Wonderland….

“Gemini Founders Launch New Mobile App” Cryptocurrency trading platform Gemini founders Tyler and Cameron Winklevoss have launched a mobile crypto trading app together with a new investment vehicle. The app allows users to buy and sell crypto, monitor real-time and historical crypto market prices, use a “recurring buy” feature, and invest in “The Cryptoverse” –– a basket of cryptocurrencies, weighted by market capitalization, to be bought as a single order.

“Ripple-based Remittance Platform in Korea” Coinone subsidiary Coinone Transfer has introduced Cross, South Korea’s first blockchain-based remittance app and web service, using enterprise blockchain technology created by Ripple. Cross gives people in Thailand and the Philippines access to faster and cheaper payment services. Coinone Transfer utilized RippleNet and connections with the Siam Commercial Bank (Thailand) and Cebuana Lhuillier (Philippines) to release the service.

“Spain to Introduce Draft Crypto Bill” Spanish ruling party Partido Popular (PP) will introduce a draft bill on cryptocurrencies and blockchain regulation in a few days. PP’s secretary Teodoro Garcia Egea announced the decision during the opening ceremony of ISDE Blockchain and Law research center in Madrid. The key reason behind elaborating the regulation is reportedly to provide some grade of certainty to investors and to allow “everyone who wants it” to introduce their own coin.

“OKEx Lists Bitcoin ABC as Original BCH”Malta-based cryptocurrency exchange OKEx has announced that it will list Bitcoin Cash ABC under the original Bitcoin Cash ticker BCH. It will also change the Bitcoin Cash SV ticker from BCHSV to BSV. Bitcoin Cash ABC has earned the BCH ticker on other major exchanges as well. Earlier this year, the Gemini crypto exchange announced that it will “only be providing support for the Bitcoin ABC network,” which it states will be identified on the platform as “Bitcoin Cash with ticker: BCH”.

Crypto Twitter Pick

What We’re Reading
 / Listening To

The Growing Focus on Blockchain Governance by Chris McCoy

Quantifying Decentralization by Balaji Srinivasan

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