Almost every decentralized network claims a very high level of decentralized — but is that always the case?
Following Ethereum’s Infura debacle in 2020 — where its network suffered unexpected outages and an accidental hard fork due to the cloak-and-dagger behavior of its core developers — the question has once again been raised by crypto and blockchain sceptics: are decentralized networks like Ethereum truly decentralized, or is there still a puppet master or two pulling the strings? What exactly puts the “de” in decentralized?
To answer this, let’s delve into the technology and then make the case for (and against) some of the world’s biggest cryptocurrencies.
What Are Decentralized Networks?
Decentralized networks are protocols distributed across multiple computing devices, commonly known as nodes. The decentralization factor is enabled by the nodes having the ability to communicate without a monitoring entity. Additionally, each computer on a distributed system has an updated copy of available data.
Notably, decentralized networks use consensus mechanisms to conduct data validation functionalities without the need for a central controller. However, before data is considered a valid record on the system, a certain number of participating nodes need to reach an agreement independently. Therefore, a node does not wait for instructions from a centralized entity, despite being governed by a common rule.
How Decentralized Are Decentralized Networks?
It’s important to note that decentralization is not an exact state, but a spectrum. That is to say, no blockchain network is completely decentralized (or centralized). Networks generally have centralized and decentralized aspects embedded in their architecture.
Although many blockchain systems are more decentralized than centralized, their level of decentralization varies from protocol to protocol. Some networks have even been accused of hiding behind the veil of decentralization despite being relatively centralized under the hood.
Below, we look at some of the largest blockchain networks in use today and how decentralized they actually are.
In the Bitcoin blockchain, those who verify transactions are called miners, and they are scattered across the globe. Most miners, however, aren’t independent. They need to participate in large mining pools in order to have consistent income, thereby handing over their mining power to the pool.
This means that whoever controls the pool controls the consensus votes of all its participant miners. With that in mind, the more independent miners there are and the more evenly distributed mining power gets, the more decentralized the Bitcoin network becomes.
In 2014, the network’s decentralized nature was under attack when a report emerged that a single mining pool controlled almost half of its hash rate. This presented the possibility of a 51 percent attack, allowing a malicious actor to reverse transactions for his/her own gain. Yet Bitcoin was left unscathed — the Bitcoin network has never been successfully attacked.
Since it doesn’t require specialized equipment, Ethereum proponents claim that PoS is more decentralized in the sense that it has a smaller barrier to entry when it comes to staking (Ethereum 2.0’s version of mining). Although independently participating in the network’s consensus requires a minimum of 32 ETH to be locked, there are several available services from Coinbase, MyEtherWallet and others that allow you to stake a lower amount. Unfortunately, staking a lower amount through these services means that you won’t be a full validator node, but you’ll instead be analogous to a small Bitcoin miner participating in a Bitcoin mining pool.
Are Ethereum Users ‘Infura Penny, Infura Pound’?
Some community members in the crypto world have expressed skepticism over the protocol’s decentralized nature, particularly after the Infura outage earlier in fall 2020.
Analysis also indicated that Infura was using an outdated client software, making it hard to support a stealth deployment of new code by Ethereum developers. But other industry leaders placed the blame on the Ethereum developers for updating the code without proper communication to the community.
As well, towards the last quarter of 2019, over 50% of nodes tapped into cloud services such as Amazon Web Services (AWS) for hosting.
Unfortunately, the collapse of these services would mean the shutting down of Ethereum nodes, which might seem like half of the network’s power rests in the hands of Amazon. However, this particular point of failure has not failed yet.
Maker is different in the sense that its consensus is achieved through decentralized governors as opposed to miners/stakers like in Bitcoin and Ethereum. It’s still decentralized, but more prone to human neglect/error.
Maker enables users to lend and borrow cryptocurrencies without any third-parties. By combining loans and stablecoins, the platform helps borrowers reliably calculate how much they’ll pay back as interest.
The platform’s decentralization means that it allows anyone with a MetaMask wallet to borrow or lend money trustlessly. Furthermore, unlocking the loan collateral doesn’t require a go-between, since a smart contract handles everything automatically while having the ability to independently monitor the loan amount and collateral provided to initiate a liquidation process if need be.
As such, block producers (BPs) maintain and support the blockchain. Compared to Bitcoin and Ethereum, the much lower number of network nodes and their proportionately higher voting power can be viewed as making EOS less decentralized as a result.
However, the EOS network places a 15% threshold (or 150 million EOS coins to be staked) for a BP to unlock all the functionalities of the network. Therefore, a BP has to find favor among EOS holders to reach this threshold, by offering the network new benefits such as a desirable geographical territory, or a socio-political or commercial area of expertise it doesn’t currently have access to.
EOS’s implementation of DPoS gives BPs the power to act on behalf of the larger EOS community.
Its deviation from decentralization came from some TRON “Super Representatives” having more voting powers than others, up to a rumored 90% at times. Consequently, co-founder Chen (among others) sees TRON as centralized, since the community has a minimal say in block production and transaction confirmation.
TRON has 27 Super Representatives that validate blocks. However, to enhance decentralization, the representatives are re-elected every six hours. Apart from securing the network, Super Representatives vote for improvement proposals using their delegated power.
Some proponents have called Tron’s system an on-chain democracy due to its similarity to politicking when engaging in governance activities.
How Decentralized Are Decentralized Networks After All?
How decentralized are decentralized networks? From the above analysis, it’s clear that blockchain networks, while touting a fully decentralized outlook, sometimes have some elements of centralization at their core.
Bitcoin is viewed as the most decentralized blockchain platform. Ethereum, although sometimes accused of being centralized, is also more decentralized than the vast majority of existing blockchains. And with Ethereum 2.0, its shift from PoW to pure PoS could lead to greater decentralization.
Apart from the big two (Bitcoin and Ethereum), most other chains have decided to make tradeoffs, sacrificing part of their decentralization in exchange for speed, scalability, new functionality, etc.
This is likely the reason why the two biggest chains are also two of the slowest and most rigid among all decentralized networks. But with decentralization comes fairness and security, among other perks, that make it a worthwhile attribute to preserve.