Examining the True Decentralization of Bitcoin and Ethereum 🚨 This article is 6 years old...
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Examining the True Decentralization of Bitcoin and Ethereum
2 min read
Updated: Nov. 7, 2019 at 2:56 am UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
When I talk to people about cryptocurrencies, I hear a lot of the same refrains. People frequently tout its decentralized blockchain, its ability to transform the world economy, or its expected price hike just around the corner.
None of these things are wrong. The blockchain’s distributed ledger system really is a novel technology that will change connectivity as we know it, cryptocurrencies are making a real impact on the world economy, and, for most of 2017, and prices increases really were around every corner.
However, sometimes it’s good to look up from the popular narrative and to listen to people who are thinking more analytically and who are investigating more technically.
A recent study conducted by a cadre blockchain scholars and published through Cornell University found some surprising realities about the most popular cryptocurrencies, Bitcoin and Ethereum. The full report performs a detailed overview of Bitcoin and Ethereum, and some of its most potent commentary focuses on decentralization and decision-making.
Neither Bitcoin or Ethereum Have “Better” Properties
In theory, the blockchain is a decentralized ledger that is maintained by thousands of computers located all around the world. In reality, for both Bitcoin and Ethereum, it’s a much more centralized process. According to sections of their report released to HackingDistributed,
“The entire blockchain for both systems is determined by fewer than 20 mining entities.”
As cryptocurrencies have surged, so have the number of companies devoted to developing and employing crypto-mining operations. CNBC, reporting on the prolific of professional Bitcoin mining operations, characterized Bitcoin mining as a specialized operation that’s more profitable and more feasible for professionals.
In addition, the report notes that Ethereum does a better job than Bitcoin of favoring small miners. It’s also slightly more decentralized with only 28% of its mining capabilities coming from data centers compared to 58% for Bitcoin.
While the authors identified some possible solutions including a Byzantine quorum system, they acknowledged that these solutions would require additional research and testing before they would be viable alternatives that either platform could implement.
Motives Behind Policies Often Lack Academic Backing
Block size debates were rampant in crypto-communities last year, and Bitcoin even endured a hard-fork as a result of this discussion.
However, the study learned that,
“the maximum block size can be increased without impacting orphan rates, which in turn affect decentralization.”
By 2016 decentralization rates, almost doubling the block size also doubles the transaction rates without significantly impacting any of the blockchain’s performance metrics.
In other words, both Bitcoin and Ethereum can do much better.
Perhaps most astonishingly, the authors identify lousy argumentation, not scientific research, as the reason that the two platforms are failing to appropriately mature. In scathing remarks on the topic, the authors concluded,
“The dissonance between the technical-soundness of the arguments and the actual technical facts on the ground is disconcerting for a technological endeavor.”
Cryptocurrency conversations are often just vigorous debates enacted over social platforms. These discussions yield some excellent results for the crypto-community, but it’s also essential to continue the academic approaches to cryptocurrency and blockchain. Together they are helping these emerging technologies become the platforms that everyone expects them to be.
