Hey guys,
Is it possible to talk about more or less decentralized cryptocurrencies? What are the factors that are determining decentralization of a cryptocurrency?
Can you give an example, for example, today I heard that Dash is more decentralized than bitcoin? What does that mean? Is it possible to set up a list of decentralized cryptocurrencies?
Thank you for joining the discussion.
Hi,
That’s is actually quite a hard question to address as it depends on your definition of decentralised.
Examples
Bitcoin is decentralised in a sense that the network is controlled and managed by all of it’s users, and a copy of the blockchain is stored by the nodes. However, if you look at the proof-of-work (PoW) mining in bitcoin you can clearly see that it has moved from being decentralised to being centralised over time. As more and more hashing power is needed to mine a block, a small group of users that has the capital to invest in an increasing capacity of hardware has taken over mining almost exclusively and as such bitcoin mining is no longer in the hands of the network (I.e. centralisation).
Bitcoins’ solution to micro transactions is putting in place the lightning network, while this appears to work well (and is a really clever idea) it in itself is adding a layer of centralisation to the bitcoin network, there are about 600 nodes in the lightning network so it’s hard to call it decentralised on a platform that serves millions of accounts.
Similarly, the Tangle (the network behind IOTA) is meant to be a fully decentralised service, however they are currently running a “coordinator” function to help move transaction along until they achieve critical mass and can sunset the coordinator function. Since the coordinator is controlled by the IOTA developers and not the network this gives a high level of centralisation on what should be a fully decentralised network. Granted, this is - presumably - temporary and as such a crypto currency can move between being fully decentralised and partially centralised.
Ripple / Hashgraph / Raiblocks (Nano) all have similar structures in place, the network is decentralised but nodes need to become approved and / or trusted nodes in order to sort out issues with transactions, not a big problem in itself but if there aren’t enough approved / trusted nodes this can also lead to centralisation.
Ethereum - like Bitcoin - I would currently call centralised (due to PoW mining) but is moving towards more decentralisation with the implementation of proof-of-stake (PoS) mining in future. While PoS mining is in principle decentralised (and will likely be at the start) this can also become highly centralised if only a handful of individuals control most of the coins in circulation, since their voice will overrule others.
I think to address this question I would suggest that you throw this into an Excel spreadsheet and add various columns containing parameters that can cause centralisation / decentralisation and fill that out per coin. You give each column a weight and depending on the weighted average you can decide whether a coin is currently more centralised or less centralised. While at their core principle they should all be decentralised, market economics are dictating this quite differently. Also, you should not aim to achieve 100% to achieve decentralisation.
Some parameters I can think off:
You will see that each coin moves in value over time on various parameters which can tip the scale on whether they receive an ultimate centralised vs decentralised classification.
Awesome post! I don’t agree on the lightning network being centralized. For a hub to exist it would have to have an extreme amount of capital and to that point wouldn’t be worth it against the risk.
Thanks 
and fair point about the lightning network, also as more nodes are added they move further away from centralisation.
However, from Bitcoin’s perspective it does create reliance on a 3rd party to deal with a great amount of transactions, which in itself is a form of centralisation / decline in control. Whether that makes the whole of bitcoin (or any other coin using the lightning network) centralised obviously will depend on a lot of the other factors.