Decentralisation in Blockchain: A Multifaceted Overview

An overview of the various types of decentralisation in crypto, focusing mainly on consensus decentralisation.

Jun 28, 2022
decentralisation in blockchain june 2022

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Executive Summary

Decentralisation is one of the core tenets of the crypto ecosystem. In the context of blockchain technology, decentralisation refers to the shift of governance, control, and decision-making from a centralised entity to a distributed network of nodes.

Consensus Decentralisation:

  • Consensus decentralisation refers to the distribution of mining in proof of work (PoW), and the distribution of staking in proof of stake (PoS).
  • The largest Bitcoin mining pool is Foundry USA, with a 22.7% hashrate share as of 1 June 2022. Stratum V2 is a new Bitcoin mining pool protocol currently under development that gives the individual miner the choice to choose their own transaction set. This helps to protect against network centralisation.

Governance Decentralisation:

  • Governance decentralisation refers to the decentralisation of blockchain governance and decision-making power.
  • The Ethereum Improvement Proposal (EIP) process is also decentralised and based on community support. Sometimes, even Vitalik’s EIPs do not get adopted.

Wealth Decentralisation:

  • Wealth decentralisation refers to the decentralisation of crypto assets, particularly the native token, that is distributed across blockchain users.
  • We showcase how Bitcoin wealth is becoming more evenly distributed, using data from research papers.

Key Highlights

Consensus Decentralisation:

  • So far none of the BTC mining pools are large enough to command a majority. This is a good thing from the point of view of consensus decentralisation. The largest BTC mining pool is Foundry USA, with a 22.7% hashrate share as of 1 June 2022.
  • Lido is currently dominating Ethereum Beacon Chain staking, accounting for 32.3% of all staked ETH. Lido is making some attempts to improve the situation. Recently, on 21 May 2022, the Lido community drafted a proposal to limit Lido’s stake to a fixed percentage.
  • For Ethereum, the United States hosts 45% of the nodes, according to the site Germany ranks second with 12.9%, followed by Finland and Singapore with 4.3% each.

Governance Decentralisation:

  • The Bitcoin Improvement Proposal (BIP) process is robust and decentralised, with opportunities for community involvement at various steps.
  • In the table below, we list down some metrics regarding GitHub contributors and commits of various blockchains. In general, the more contributors, the more decentralised the blockchain is. Balaji Srinivasan, a prominent crypto entrepreneur and essayist, calls this ‘Dev Decentralisation’.

1 The Binance Smart Chain client is based on a go-ethereum fork, which explains why both Go Ethereum and BSC display the same starting date and top contributor.

As of 10 Jun 2022 Sources: GitHub, Research

Wealth Decentralisation:

  • The statement ‘2% of addresses control 95% of the supply’ is true for BTC, however we remark that there is a big difference between addresses and individual holders. Many of the top Bitcoin addresses are exchanges, companies, ETFs, or even countries, which represent many individual holders.
  • Since Bitcoin went live in 2009, its Gini coefficient has been declining steadily (meaning Bitcoin’s wealth decentralisation has improved). Hence, Bitcoin and Ethereum’s wealth decentralisation can be said to be on par with (or even better than) many countries (when comparing with countries’ Wealth Gini, not Income Gini). 

Read the full feature article: Decentralisation in Blockchain

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