Crypto, blockchain and Web 3.0 are all about decentralization. Decentralization means that there is no central authority to impose the game rules and control whatever is going on in an ecosystem. All the powers belong to the ecosystem’s community.
In crypto, it means that there is no bank or financial institution behind an ecosystem that imposes how many coins shall be minted and how they have to be distributed.
I’ve seen people who confuse decentralization with anarchy when nobody is responsible for anything. These things are different though.
What Is Decentralization?
Instead of giving any common definitions, I’d cite Changpeng Zhao: “I believe the first thing to understand is that decentralization is not binary and not single-dimension. There are multiple aspects to decentralization. Every aspect is a gradient scale, not simply black-and-white.” It also means that decentralization has its levels. They are expressed in the Nakamoto coefficient. But this value doesn’t reflect the situation correctly. I’ve already written that there are many more factors to consider before making a judgment about a blockchain’s decentralization. Not only does the number of validators matter but also to whom these validators belong.
Is Binance Centralized as It Claims?
We all know that Binance is a centralized exchange. Here, we should distinguish between the Binance exchange and the blockchain - the Binance Smart Chain. The latter is decentralized, or at least the Binance CEO claims it is.
How come then that the blockchain was so easily halted when the most recent hack happened? There are not so many validators there, you can see the entire list of addresses here. At the moment of writing, there are 31 validators, with only 26 of them being active. In his Reddit post, CZ also lists all the validators who replied to the request to halt the blockchain. The decision was not made by the Binance CEO solely. It means that the Binance Smart Chain is decentralized. Another question is to which extent it is decentralized though.
Are There Any Decentralized Blockchains at All?
For now, the only really decentralized blockchain is probably the one of Bitcoin. There, full nodes that are active are validators, we also call them miners. For now, this blockchain is claimed to have over 100,000 nodes, of which 50% are active.
Source: https://twitter.com/francispouliot_/status/1125139855313387520
Compared to the Binance Smart Chain, these numbers are immense.
We shall not forget, however, that one needs to comply with specific criteria to run a validator’s node on a specific blockchain. In the Proof-of-Work blockchains like the one of Bitcoin, one needs only to download the full blockchain to run a validator node. In Proof-of-Stake blockchains, it is needed to stake a specific amount of coins to be able to validate transactions and blocks.
So what about the most decentralized PoS blockchains? The one that seems to comply with the decentralization requirements is Ethereum 2.0 with over 220K validators. Compared to other blockchains, it is 100% decentralized.
Source: https://blocktables.com/ethereum/total-number-of-validators-on-popular-blockchains/
But once again, I have already noted that the main holder of staked ETH is Lido Finance with its ETH staking pool. It means that if I have staked 5 ETH in the Lido pool, and my friend staked 27 ETH there, we don’t get validator rights because the minimum amount is lower than the one required to become a validator on ETH 2.0. But Lido has gotten its 32 ETH to get one validator’s vote. How many validators' votes does the platform have from those over 220K? The majority.
Source: https://bi.etherscan.io/public/dashboards/KH9jbP687szqlAnHiNEfNictrwNhvdOEQl0PwB6m?org_slug
With Lido having over 30% of validating power, we cannot say that ETH 2.0 is indeed decentralized. If we compare it with the Binance Smart Shain, it would be like CZ held 8 nodes from those 26 that are active.
Again Citing CZ
As we can see, centralization and decentralization are not as evident concepts as we would like them to be. That’s why I’d reply to the question about decentralization by citing the Binance CEO: “Far more important than centralization and decentralization are: security, ease-of-use, and freedom”. If we are confident that our funds are safe, and we can access them easily, the aim is achieved.
Are there any blockchains that are decentralized indeed? For now, I don’t see them. They will evolve in the future, along with the Web 3.0 evolution but it will take some time.
