A Unified Framework for Analyzing Blockchain Decentralization

Table of Links

Abstract and 1. Introduction

2 Methodology

3 Hardware

4 Software

5 Network

6 Consensus

7 Cryptocurrency Economics

8 Client API

9 Governance

10 Geography

11 Case Studies

12 Discussion and References

A. Decentralization and Policymaking

B. Software Testing

C. Brief Evaluations per Layer

D. Measuring decentralization

E. Fault Tolerance and Decentralization

12 Discussion

Our main contribution is the systematization of the rather fragmented body of literature related to decentralization into a unified framework, under which the decentralization of any distributed ledger can be analyzed. Table 1 summarizes our methodology, i.e., the layers that comprise a ledger and the relevant resources and parties that guarantee its core properties. Removing single points of failure via a diverse distribution of resources across independent parties is critical in guaranteeing security, privacy, and stability and can also have legal implications (cf. Appendix A). Our work also opens various research threads.

First, even though we do not treat off-chain “Layer 2” protocols [95] as a distinct stratum, our methodology can be readily applied to a combination of Layer 1 (main chain) and Layer 2 protocols. For example, one could apply our layering methodology on a combination of Bitcoin and the Lightning Network [145] and assess the decentralization of the combined system as a payment network. Similarly, our methodology can assess blockchain-based “decentralized applications” (DApps), e.g., DeFi systems.[23] Investigating the decentralization of Layer 2 protools or DApps via our methodology is thus a promising research thread.

Second, exploring the relationship between decentralization and fault tolerance, as well as the settings where decentralization is beneficial and those where it is not, is another interesting topic of future research.[24]

Third, we offer a framework for analyzing blockchain decentralization, but not specific quantitative metrics. A compelling direction for future work is systematically identifying the right metrics for each layer to capture all relevant aspects of blockchain decentralization.[25] Building on this, a natural end-goal of all questions posed above is producing a quantitative blockchain decentralization index. Historically, it has been observed that increasing decentralization on one axis coincides with, or even results in, centralization on another [158]. Future work should further explore the dynamics between all layers, resolve possibly inescapable trade-offs, determine the importance (weight) that should be assigned to each layer and each metric, and efficiently combine them into an index.

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[23] In such cases, smart contract development would naturally fall in the software layer.

[24] Appendix E expands on the relationship between fault tolerant systems and decentralization.

[25] Appendix D offers an overview of metrics that have been used so far in this setting.