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How Centralized is Decentralized? Summary and Referencesby@cryptosovereignty

How Centralized is Decentralized? Summary and References

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Rapidly growing distributed ledger technologies (DLTs) have recently received attention among researchers in both industry and academia. While a lot of existing analysis (mainly) of the Bitcoin and Ethereum networks is available, the lack of measurements for other crypto projects is observed. This article addresses questions about tokenomics and wealth distributions in cryptocurrencies. We analyze the time-dependent statistical properties of top cryptocurrency holders for 14 different distributed ledger projects. The provided metrics include approximated Zipf coefficient, Shannon entropy, Gini coefficient, and Nakamoto coefficient. We show that there are quantitative differences between the coins (cryptocurrencies operating on their own independent network) and tokens (which operate on top of a smart contract platform). Presented results show that coins and tokens have different values of approximated Zipf coefficient and centralization levels. This work is relevant for DLTs as it might be useful in modeling and improving the committee selection process, especially in decentralized autonomous organizations (DAOs) and delegated proof of stake (DPoS) blockchains.
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This paper is available on arxiv under CC 4.0 license.

Authors:

(1) Bartosz Kusmierz, IOTA Foundation 10405 Berlin, Germany & Department of Theoretical Physics, Wroclaw University of Science and Technology, Poland [email protected];

(2) Roman Overko, IOTA Foundation 10405 Berlin, Germany [email protected].

Abstract and Introduction

Related Work and Methodology

Results

Summary and References

IV. SUMMARY

In this article, we analyzed the wealth distribution of the richest addresses in various cryptocurrencies. This included the time evolution of statistical metrics like the approximated Zipf’s law coefficient, Shannon entropy, Gini coefficient, and Nakamoto coefficient, along with their average values. It was shown that coins and ERC20 tokens have quantitatively different distributions of wealth. In particular, the values of approximated Zipf’s law coefficient for coins are 0.4—1.25 and 0.7—2.25 for ERC20 tokens. Differences between the two groups were also apparent during the study of wealth centralization. It was observed that tokens are, in general, much more centralized than coins with higher Gini coefficients and smaller Nakamoto coefficients.


This research might be of particular interest to DAOs and DPoS-based blockchains which rely on some form of a committee of the richest token holders. Presented values of statistical metrics like approximated Zipf coefficient or Nakamoto coefficient might help to model a committee selection process and make it more secure. Future work will evolve in two directions. Firstly, we are working on incorporating more metrics, analyzing more tokens, and considering more different sample size values. Secondly, the main findings of this work will be used to model a committee selection process.

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