Close examination reveals how power is being consolidated across their networks.
In cryptocurrency circles, calling something “centralized” is an insult. The epithet stems from Bitcoin creator Satoshi Nakamoto’s revelation: a monetary system doesn’t need a central authority, like a government, to work. That’s such a potent idea that it’s morphed into a battle among crypto-enthusiasts between good—that is, “decentralized”— currencies and evil ones, or anything with a whiff of “centralization,” that are assumed to threaten the utopian view of cryptocurrencies as the vehicle for a new financial world order.
Do these arguments hold any water? Emin Gün Sirer, a cryptocurrency expert at Cornell University, says in many cases the jury’s still out—mainly because no one’s bothered to take a hard look at how decentralized these networks actually are.
“We don’t have any real metrics yet.” he says. His group aims to help change that with newly published results from a two-year-long study focused on Bitcoin and Ethereum, the world’s most popular cryptocurrency networks.
Perhaps the most striking finding is that the process of verifying transactions and securing a blockchain ledger against attack, called mining, is not actually that decentralized in either system. Bitcoin and Ethereum are open blockchain systems, meaning that in principle anyone can be a miner (see “What Bitcoin Is, and Why It Matters”). But organizations have formed to pool mining resources. The researchers found that the top four Bitcoin-mining operations had more than 53 percent of the system’s average mining capacity, measured on a weekly basis. Mining for Ethereum was even more consolidated: three miners accounted for 61 percent of the system’s average weekly capacity....MORE