The Nakamoto Coefficient and How it Can Impact the Robustness of a Blockchain by@anormaljourney
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The Nakamoto Coefficient and How it Can Impact the Robustness of a Blockchain

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Solana's outage was caused by a single node misconfiguration, which took out the chain for a whole 6 hours. The Nakamoto Coefficient (NC) is “an accurate way to measure the decentralization of the project” It suggests the fact that a blockchain’s robustness cannot be measured with a simple score — there are deeper aspects, both socially and technically, that must be considered. With how blockchain currently works, if enough nodes gather together, they can effectively overwrite the chain, roll back transactions and control the network as a whole.

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Just as the world was turning to the crisp fall of 2022, one of the largest functional blockchains went down.

This wasn’t the first time either — Solana has had its fair share of downtime over the years, particularly this year.

The worrying aspect was: it was due to a single node misconfiguration — one that took out the chain for a whole 6 hours. As one can imagine, for a financial crypto giant, this is a big deal.

For a protocol that popularized and has a respectable Nakamoto Coefficient score, it brings to light just how the concept of decentralization has changed over the years. It suggests the fact that a blockchain’s robustness cannot be measured with a simple score — there are deeper aspects, both socially and technically, that must be considered.

Blockchain scalability in general has been one of the conversations for years now. With more and more startups wanting to use blockchain for more than crypto, it’s become clear that the technology must be able to facilitate adoption for the masses.

What the HELL is the Nakamoto Coefficient?

https://commons.wikimedia.org/wiki/File:Bust_of_Satoshi_Nakamoto_in_Budapest.jpg

https://commons.wikimedia.org/wiki/File:Bust_of_Satoshi_Nakamoto_in_Budapest.jpg

If you’ve been in the blockchain or web3 space for any amount of time, chances are the word “decentralization” has somehow made it through the cracks of any conversation to do with the space.

As per CNBC’s definition, the Nakamoto Coefficient (NC) is “an accurate way to measure the decentralization of the project”. The Nakamoto Coefficient essentially is the number of nodes that hold 50%, or the majority, of the network. With how blockchain currently works, if enough nodes gather together, they can effectively overwrite the chain, roll back transactions, and control the network as a whole.

This technical decentralization and consensus, which is how blockchains decide if your balance is legit or not, is the double-edged sword of blockchain — if enough people gain influence over the nodes, the ledger can effectively be rewritten with an alternate version of history.

Hence why the Nakamoto Coefficient is considered an important metric — if you can measure how decentralized a chain is, you can get a better idea of how secure it is. Unfortunately, it is rather hard to calculate — as it requires metrics spanning from nodes, developers, miners, and more.

However, it’s clear that there are many more aspects to a blockchain’s security and robustness than merely this metric. Solana’s outage was caused by a single node misconfiguration, for example, that conflicted with the chain’s state.

In other words, it’s very much chain-dependent. The definition of what exactly this metric means is protocol-specific, meaning a whole slew of other factors must be considered.

The Future of Blockchain — Ants-Based Consensus?

https://fineartamerica.com/featured/ants-spencer-meagher.html

https://fineartamerica.com/featured/ants-spencer-meagher.html

Blockchain relies heavily on one thing — consensus. In fact, this is what makes blockchain very different from a distributed database; its ability to contain a mechanism to autonomously essentially make decisions on what data/state changes to include.

It’s already been proven that Proof of Work lacks the scalability needed for the future, despite it being the most robust consensus security-wise (Bitcoin is proof of that). In order to make blockchain both sustainable, scalable, and secure, there needs to be a change to the approach in consensus.

On an interesting sidenote, ants in nature actually have their own system of consensus. They contain bad actors, mutiny attempts, and their communications via chemical pheromones is very much similar to how blocks link together in blockchain.

Ants are somewhat centralized — but at the cost of stability. They still have independence, but also a rule of general order that allows for the stability of the colony to prosper. It would be interesting to explore a consensus mechanism that still guarantees users full sovereignty over their data and actions, but with a commonly agreed set of autonomous rules on-chain.

Conclusion

It’s no longer just about ensuring balances and double spending — users want to verify data, identity, and deeper information. They want to use this technology to ensure control over their online identity and presence, something which is becoming crucial in our everyday lives.

Web3, blockchain, and other tech all will contribute and fall into the same category — the next technical fabric that will power our daily lives. Metrics like the Nakamoto Coefficient demonstrate the need to still ensure these systems will be robust enough for global use.

Identity / the social aspect is underrated in measuring the robustness of a network, as just as ants can identify bad actors via a trail of chemical provenance, so should blockchains.

Time will tell what the future holds for how and when blockchain will be used for the masses.


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