Decentralization in Bitcoin and Ethereum Networks

Abstract

Blockchain-based cryptocurrencies have demonstrated how to securely implement traditionally centralized systems, such as currencies, in a decentralized fashion. However, there have been few measurement studies on the level of decentralization they achieve in practice. We present a measurement study on various decentralization metrics of two of the leading cryptocurrencies with the largest market capitalization and user base, Bitcoin and Ethereum. We investigate the extent of decentralization by measuring the network resources of nodes and the interconnection among them, the protocol requirements affecting the operation of nodes, and the robustness of the two systems against attacks. In particular, we adapted existing internet measurement techniques and used the Falcon Relay Network as a novel measurement tool to obtain our data. We discovered that neither Bitcoin nor Ethereum has strictly better properties than the other. We also provide concrete suggestions for improving both systems.

Impossibility of Full Decentralization in Permissionless Blockchains

“…Even though people design systems for good decentralization, in practice, we often observe that blockchain systems are highly centralized. Bitcoin and Ethereum, as representative examples, are already well known to be highly centralized in terms of network and mining [4], [14]- [16]. Currently, most of the computational power (or mining power) in these systems is concentrated in only a few nodes, called mining pool, 1 where individual miners gather together for mining.…”

“…This spurs the desire to achieve a fully decentralized system. Even though many discussions and attempts have been made to achieve good decentralization, existing systems, except for Bitcoin, Ethereum and Stellar, have rarely been analyzed [4], [21]. In this paper, for the first time, we not only study the possibility of full decentralization but also extensively investigate the existing coins.…”

“…However, this approach has a side-effect, which leads players to delegate their power to a few players because they can earn higher profits as this rational behavior decreases the number of existing nodes. As a result, the above example intuitively describes that the four conditions are contradictory when the Sybil cost does not exist, 4 and whether the permissionless blockchain can achieve good decentralization completely depends on how wide the gap is between the rich and poor in the real world. This fact is supported by Thm.…”

Map-Z: Exposing the Zcash Network in Times of Transition

“…This has also been studied analytically and with the help of simulations [6,7]. In [15], the degree of centralization of Bitcoin and Ethereum is investigated. The authors found both networks to be highly centralized in terms of (geographical) mining power distribution.…”

Methods and Applications for Modeling and Simulation of Complex Systems

“…The blockchain has an underlying peerto-peer protocol, in charge of disseminating information on novel blocks being produced, to be added to the blockchain, or novel transactions that might be inserted into novel blocks. A flooding mechanism is often used to disseminate information, while the peer-to-peer overlay is built using some peer discovery mechanism [14]. For instance, a random selection protocol is used in Bitcoin, while Ethereum employs a UDP-based node discovery mechanism inspired by Kademlia [16].…”