Decentralisation in blockchain refers to the transfer of control from a single person or a fixed group of people to all members of the network.
Blockchain is inherently distributed; this means that a copy of the ledger containing the transaction of the blockchain is held and accessible to all members of the network.
Whether a blockchain is decentralised or not depends on who controls the node, how they reach consensus, and the supply of their token.
Centralisations Vs Decentralisation
In a centralised blockchain, a fixed identified group of people are given the authority to write and confirm transactions on the ledger. Since they have control over which transactions are added to the blockchain, they make decisions that affect every participant in the network.
By contrast in a decentralised blockchain, any participant in the network for example, a miner or validator can write and confirm transactions. This means that in addition to a copy of the ledger, the control over the network is distributed.
This article details 7 top decentralised blockchains and proof of their decentralisation in no particular order.
Bitcoin is the first application of blockchain technology, forming a template on which other decentralized blockchains are built. It was developed in 2008 by an unidentified programmer (or group of programmers) by the name Satoshi Nakamoto.
It was built to facilitate the peer-to-peer exchange of currency between individuals, reducing the need for a central authority and given freedom to the people and of course, it laid the foundation for decentralisation.
Proof of Decentralization
Who controls the network?
Unlike centralised institutions (like banks) which control the printing and distribution of currencies, Bitcoin does not have a fixed node or group of nodes who are assigned the responsibility of minting new coins or distributing them. Any participant who has the required resource combination can partake in producing new coins in a process called mining or staking in the case of proof of stake consensus.
Mining is the process of adding new Bitcoins into circulation by solving complex hashing puzzles. Newly minted Bitcoins are rewarded only to the first miner (participant) who solves the puzzle.
Mining is open to all participants in the network, meaning that every member of the network has a chance to mint new Bitcoins into circulation.
To mine, a participant needs energy-intensive computer equipment like GPU (graphic processing unit) or ASIC (application-specific integrated circuit).
The probability of finding the solution to the hashing puzzle first is proportional to a participant’s mining power.
Mining and Bitcoin circulation:
Apart from the coins minted in the genesis block, every other Bitcoin in circulation is a result of mining (which is a collective effort of the network).
In 2009, for every block mined, 50 BTC was released into circulation. To ensure that new Bitcoins keep entering circulation till its total supply of 21 million BTC is reached in 2140, the number of BTC released for every block mined is reduced by half after every 210,000 blocks mined (or approximately every 4 years).
As of May 2020, 6.25 BTC was released for every block mined.
Proof-of-work is a decentralised peer-to-peer protocol that requires members of the network to use a feasible amount of effort in solving complex hashing puzzles to discourage malicious attacks on the network.
Bitcoin believes that to secure the network and keep it as decentralised as possible, the computation needed to produce new blocks needs to be moderately hard on the prover’s side (miner) and easy to check on the verifier’s side. This makes manipulation of data and attacks on the network expansive.
The purpose of the proof of work protocol is not only to prove that the work (mining) was carried out but it’s also a to help keep the network secure and to keep the it decentralised.
Who owns a greater share of the currency?
In contrast, Glassnode argues that this analysis is flawed as the statistics were carried across BTC network addresses. All addresses should not be treated equally.
Taking into consideration addresses that belong to exchanges, miners, and small entities, Glassnode came up with the following data:
This shows that 31% of BTC supply is controlled by the big non-exchange entities (whales and humpbacks) which include high net worth individuals while 23% is controlled by smaller entities (shrimps, crabs, and octopus) which include retail investors. In essence, the supply of Bitcoin is not concentrated.
Ethereum is a decentralized blockchain and cryptocurrency founded by Vitalik Buterin in 2013. It was built to bypass Bitcoin’s structural limitation and allows you to build smart contracts.
Proof of Decentralization
Some crypto experts believe that Bitcoin is becoming centralized by de facto. With the high cost of owning computation power required for mining, only a few miners and mining pools participate in the process.
To ensure that the control of the blockchain remains with the majority of the network, Ethereum reduces the cost of validating transactions and adding coins to circulation by implementing a consensus protocol called proof of stake.
Proof of stake is a decentralized consensus protocol that requires network participants to stake their coins to help validate transactions in the blockchian.
Validators do the same work that miners do in the proof of work structure, only that they do not solve hashing puzzles. They stake their coins to be selected to create new blocks or confirm transactions of a block that they did not create.
The selection of validators is done at random and not by competition. To qualify as a potential validator, participants need to stake at least 32 ETH.
Like miners, validators earn new ETH as a reward for creating and validating blocks.
Ethereum believes that the network can be kept decentralized and secure by increasing the number of participants who can create and validate blocks.
By Ethereum, by design makes 51% attack even more difficult — 51% attack is when a node or a user owns 51% of the network’s coins, hence can control the network. The node would be able to halt transaction, manipulate the transactions and even reverse them.
There are arguments that Ethereum’s proof of stake protocol would eventually lead to centralization: the rewards given to validators increase their stake and this increases their chances of being chosen. Eventually, only a fixed group of validators who hold a higher percent of ETH as a result of reward distribution would control the network.
What this argument fails to consider is the probability of validators losing their stake.
Validators lose a portion of their stake for going offline (i.e falling to validate) or their entire stale for deliberately trying to manipulate the network. They also lose their stake in validating malicious blocks.
With the proportional rewarding and slashing of stakes, no validator can control enough stars to make the network centralized.
Smart contracts reduce the need for intermediaries by automatically executing actions according to contracts and agreements. They enforce Ethereum’s decentralization as they build a trustless permissionless economy.
Smart contracts are not controlled by users but run as programmed. This means that the control over actions on the network is not placed in the hands of the users but in contracts in which terms have been placed by the users concerned and run automatically.
Algorand confirms 1000 transactions in 1 second without sacrificing its decentralization.
Proof of Decentralization
Algorand uses a smart contract which allows it to execute actions automatically according to an agreement. Algorand smart contra t is a 2-layered structure.
Layer-1 creates a fast route for executing common transactions, atomic swaps, atomic transfers, and user-defined Algorand standard assets (ASA). These actions are automatically executed and validated by a randomly chosen consensus committee.
Algorand’s layer-2 smart contract executes more sensitive transactions also by a randomly selected contract execution committee.
Algorand’s smart contract proves its decentralized structure as none of its actions is controlled by a single individual or a fixed committee.
Pure proof of stake (PPOS)protocol:
Pure proof of stake is Algorand’s consensus protocol which gives control over who creates and validates blocks in the phase.
In the first phase, a user is randomly selected to propose a block. Any member of the network can be chosen as long as they have 1 ALGO in their wallet.
In the second phase, 1000 users are randomly and secretly selected to form a committee that validates the block proposed by the first user.
The selection is random; Algorand foundation nor the users in the network have control over who gets into the committee. Instead, each user who wants to be part of the committee runs a cryptographically fair lottery privately.
If a user wins the lottery, he propagates his vote on the block and his winning ticket proving that he won the lottery. Once a majority of the committee agrees to the authenticity of the block, the committee is dissolved and a new committee is selected.
This means that no fixed 1000 member committee is in control of the network.
Algorand Standard Assets (ASA):
Algorand blockchain supports the creation of assets (like tokens) on its layer-1 smart contract that has the same speed, security, and ease of use as its native coin ALGO.
Algorand gives every user a chance to participating actively on its blockchain.
As part of Algorand’s design, part of the rewards paid to validators are distributed to all ALGO coin holders. This means that Algorand gives no chance for centralization as a result of reward allocation.
Algorand has a maximum supply of 10 billion ALGO of which 16% has been released into circulation. Considering its 10 years distribution plan, no single entity is given control over the majority of its coin. Instead, ALGO is distributed as community incentives and for ecosystem support.
There are arguments that Algorand Inc and Algorand foundation controlled the majority of its resources from their initial allocation.
Reputing this statement, do not forget that these two institutions are in charge of supervising and developing the Algorand protocol as well as supporting developer education, accelerator programs, and blockchain events.
Polkadot is a decentralized web 3.0 blockchain that connects unrelated blockchains (like Bitcoin and Algorand) allowing users to share data and assets (not just tokens) between these networks. It was launched in May 2020 by a team led by Gavin Wood, an ex-CTO at Ethereum.
Proof of Decentralization
Polkadot creates a network where everyone is in charge. Innovators can build blockchains, connect pre-existing blockchain on the network, and transfer assets between these blockchains. But how does Polkadot perform these functions with its decentralization intact?
Governance decisions begin as a proposal. A proposal is a set of functions that can be simple as setting the balance of an account or more complex as changing the logic of the Polkadot blockchain.
All proposals begin either from the public (any DOT token holder is allowed to propose new ideas), or from the council (which are publicly-elected DOT token holders), or as a result of the enactment of another proposal.
After the proposal is made, it is passed through a public referendum where all users express their opinion about the proposal.
The Polkadot system ensures that proposals from both the council and the public have an equal chance of reaching the referendum by autonomous selecting the next proposal.
When a referendum begins, users vote on the proposal. Votes are not according to the number of tokens but the user’s conviction. A user who voted a passed proposal has to lock up to tokens until the proposal is enacted; this shows their commitment to the stake. Users on the losing side are free to exit.
Users can increasese their voting power by locking up their tokens for a longer time. This structure lets users with a little stake but strong convictions express their opinion.
Council and Technical Committee:
Council members are publicly elected users that represent passive stakeholders. Their primary role includes proposing referenda and disapproving dangerous referenda.
The technical committee composes of teams actively building the network. Together with the council, they can propose emergency referenda for fast-tracked voting and implementation.
Nominated proof of stake protocol:
To become a validator, users need to stake a substantial amount of their DOT and run a node with little or no downtime. This could make participating in the network expansive.
To allow regular investors to participate in staking, Polkadot created a role for nominators who can stake indirectly by delegating their DOT token to a validator of their choice.
Part of the rewards earned by a validator is distributed to its nominators. Both validators and nominators risk forfeiting their stake for making a mistake, having technical difficulties, or trying to cheat the system.
Validators can either act as collectors who track valid parachain transactions or fishermen who find and report bad behaviors across the network.
Cardano is a third-generation public blockchain launched in September 2017 by Charles Hoskinson, a former co-founder at Ethereum.
Cardano seeks to provide financial service to the world’s unbanked population.
Proof of Decentralization
Cardano believes that 3 distinct elements must be in place for a blockchain to be truly decentralized. These elements include; block production, governance, and network decentralization.
Block production on Cardano’s network is solely in the hands of its 2,200 community stake pools.
To produce new blocks and verify transactions in a block, Cardano uses a variation of proof of stake protocol called Ouroboros.
Ouroboros requires a good number of ADA holders to be online and have good network connectivity. As a result of this, it relies on stake pools instead of individual nodes for running its staking protocol.
A stake pool is a server node that holds the combined stake of various stakeholders (users) in a single entity. Stake pools are responsible for staking coins that are required for producing new blocks, verifying transactions, and getting rewards for block production. The rewards are shared between the stakeholders forming the pool.
Ouroboros processes transactions by dividing chains into epochs which are further divided into time slots. A slot leader is randomly selected (from the stake pools) for each time slot to add blocks to the chain. The probability of a stake pool being elected as a slot leader is proportional to the number of stakes it has.
To protect the system against attack, a slot leader is required to consider the last few blocks of the chain as temporary and the blocks before the specified temporary blocks as settled. This is referred to as settlement delay.
Cardano’s decentralization in the aspect of governance and network is already in progress with its experiment in decentralized decision making and project catalyst.
Whitepapers provide statistics and facts about a project explaining the purpose and technology behind it. In a blockchain, it serves as a guide that shows the course of action that should be taken when resolving a complex issue. It’s binding and affects the decision-making process of the network.
Unlike other blockchains, Cardano doesn’t have whitepapers, instead, it uses scientific papers and design principles that are less binding.
EOS.IO is a decentralized blockchain that was designed to facilitate the operations of decentralized applications (Dapps). It was founded in 2017 by Dan Larimer and Brenden Blumer, and developed by Block.one.
Proof of Decentralization
Delegated Proof of Stake:
To power EOS.IO blockchain, developers need Bandwidth (Disk) that helps to relay information across the network, computation (CPU) that helps to run Dapps through its processing power, and storage (RAM) that stores the data of the blockchain.
Since not all stakeholders can access the equipment that can keep the blockchain running, block production in EOS.IO is placed in the hands of active nodes who can. These nodes are referred to as block producers.
To keep the network decentralized, block producers are not selected based on the weight of their computation power but are voted by the stakeholders. Any EOS token holder can participate in voting block producers. The strength of their vote is proportional to the number of EOS tokens they hold in the network.
Each stakeholder can vote up to 30 block producers in a single voting action. The top 21 elected producers act in the delegated proof of stake protocol to produce, validate new blocks, and earn new EOS tokens as a reward for doing so.
The remaining producers who are not elected act as standby (in the order of their vote. This means that the producer with the lowest vote is the last producer on the waiting list while the producer with the number of votes closest to the 21st elected block producer is the first on the standby (waiting list)).
If a delegated block producer is not doing their job correctly (like failing to validate a block), they are voted out by the stakeholders and replaced by the standby producers.
EOS.IO uses a smart contract that runs decentralized applications automatically.
It enables parallel processing of smart contracts by; asynchronous communication in which computers can communicate with each other without being present in the same location, interoperability which is the ability of computers to exchange and utilize information, and horizontal scalability in which transaction rate is improved by adding more computers (nodes) to the network.
Stellar is an open-source decentralized protocol that enables the low-cost transfer of digital currency to fiat currency and cross-border transactions between any pair of currencies.
It was founded in 2014 by Jeb McCaleb (co-founder of Ripple), and developed by the Stellar Development Foundation.
Proof of Decentralization
Stellar Consensus Protocol (SCP)
The stellar consensus protocol is a Federated Byzantine Agreement that helps Stellar reach an agreement about outcomes on the blockchain in a way that keeps its decentralization.
Stellar consensus protocol makes use of multiple federated votes (In various voting phases) on multiple values until one value makes it through all the phases. The value represents a stellar ledger. Votes are taken on statements about the values and not on the value themselves.
Federated voting is a procedure where a node chooses a value out of many possible values. To ensure that a majority of the system chose the same value, the node exchanges messages with other nodes, allowing each of them to confirm that a majority (quorum) Of the nodes accepts the same vote.
The nomination phase is the first run of federated voting in the Stellar consensus protocol. The goal of this phase is to find a statement that makes it through the acceptance and confirmation phase.
This means that after a node nominates a value, it sends a message to its peers to check their information. If a majority of its peers (referred to as a quorum) nominates the same vote, the node vote on acceptance of the statement (in the form of “I accept k”, k being the value a quorum of its peers nominated). Acceptance is a stronger guarantee than nomination.
The second phase of the Stellar consensus protocol is the balloting phase where a node commits to an accepted statement.
In SCP, all participants in the network are free to join the federated voting process.
Decentralized blockchains are like democratic systems where the power (control) of the network rests on the participants (stakeholders).
Investing in a decentralized blockchain is safe and beneficial as there are no sudden changes to the network except voted for by the participants in the network. This is by no means a financial advice.
Emmanuella Elenbalu is the Content Manager at Coinsem. She is passionate about cryptocurrency, investment, and learning new things.