Decentralization is the foundation of blockchain technology and promises a more resilient and censorship-resistant alternative to centralized systems. But are the industry’s leading protocols as decentralized as they claim to be?
Decentralization can be measured in multiple dimensions. At first glance, the number of entities participating in a network’s block mining or validation process is one of the simplest and most apparent metrics. However, other factors also contribute to the increase or erosion of decentralization:
- Accommodation facilities: Where nodes are hosted directly affects who controls them. If thousands of entities host nodes in facilities controlled by one or a few entities, the network is put at risk. For example, Hetzner unilaterally closed 40% of Solana validators in 2022.
- Jurisdiction: Geographic location is relevant because it provides diversification of risk related to unfavorable or unpredictable regulatory actions.
- Client software: A blockchain with nodes running on a single client software is at higher risk of bugs and vulnerabilities than those with a single code.
The following table compares the degree of decentralization of the leading protocols using these dimensions:
Source: Solana Decentralization Report, Ethernodes Geographic location of ETH nodes, Tron Nodes, Polkawatch
Decentralization comes at a cost: the greater the distance between peers, the greater the latency. Latency is crucial for validators to complete assigned tasks in a reasonable amount of time. Failure to meet these deadlines results in loss of rewards for validators, which increases the incentive to locate near larger groups of peers, thus increasing centralization. The larger the block size or the shorter its duration, the greater the incentives for centralization.
In other words, many protocols indirectly penalize decentralization by decreasing the rewards of those who dare to deploy infrastructure in territories where no one else is doing so. Early adopters bear the burden of blockchain resilience with no incentive other than to do what needs to be done, where it needs to be done.
Few protocols provide any kind of predictable and explicit protocol-level incentives (e.g., higher priority when proposing blocks, higher share of issuance rewards) to drive network decentralization. In most cases, incentives are managed as arbitrary grants or delegations from protocol foundations to specific network participants on a case-by-case basis.
If decentralization remains the cornerstone of the blockchain ethos, the industry must act accordingly. Protocols should adopt mechanisms that incentivize nodes to operate in multiple jurisdictions, be hosted in separate facilities, and use varied client software (if available). Without such incentives, the natural pull of economic efficiency will drive centralization, threatening blockchain’s very promise: censorship resistance.
The future of blockchain depends on networks designed to remain decentralized, not by accident or goodwill, but by design.
Let’s ensure that decentralization is not just an aspiration and is a measurable and incentivized reality.
