Decentralization is a key point for blockchains and cryptos. A non decentralized blockchain would allow a single entity to take control of it and do what they want with the blockchain and your coins stuck on it. Therefore, it is crucial to put your coins on a decentralized blockchain. One usual way to assess the level of decentralization of a blockchain is to look at the number of nodes or validators. However, even if a blockchain has many validators, it does not mean that it is decentralized. For instance, on a Proof-Of-Stake blockchain, a few validators can own most of the coins staked on this blockchain. If the most important validator has 51% of the staked coins on this blockchain, he will be able to do what he wants. That's why there is another parameter used to assess of level decentralization, called the Nakamoto coefficient.
What is the Nakamoto coefficient?
The Nakamoto coefficient is the minimum number of validators that can collude to shutdown a network. For Bitcoin, it would require 51% of validators to shutdown the network by organizing a 51% attack. For some other blockchains, 34% is sufficient, due to the consensus, for instance on Solana.
What are the most decentralized blockchains?
We can calculate the Nakamoto coefficient of various blockchains (with the total number of active validators and the source in parentheses):
- Bitcoin - 6575 (13148 - https://bitnodes.io/)
- Ethereum - To be calculated... (5599, https://www.ethernodes.org/)
- Avalanche - 50 (1236, https://explorer.avax.network/validators)
- Solana - 19 (1440, https://solanabeach.io/validators)
- Cosmos - 12 (150, https://www.mintscan.io/cosmos/validators)
- Elrond - 7 (3200, https://explorer.elrond.com/validators)
- Binance Smart Chain - 7 (21, https://bscscan.com/validators#)
- Terra - 7 (130, https://stake.id/#/)
- Tezos - 5 (463, https://tezblock.io/baker/list)
- Fantom - 3 (55, https://ftmscan.com/validators)
- Polygon - 2 (100, https://polygonscan.com/accounts)
By looking at these figures, it is obvious that:
- Bitcoin is the most decentralized blockchain by far. The second one shoud be Ethereum, although the coefficient still needs to be calculated, especially with the expected merge towards Eth 2.0 which should increase this coefficient (Vitalik said in 2020 that the coefficient was only 34...)
- Beside Bitcoin and Ethereum, Avalanche is the most decentralized blockhain, followed by Solana (but this one has currently some tech issues...)
- The other blockchains are poorly decentralized (e.g., Terra) or not decentralized at all (e.g., Polygon) and hence present single points of failure.
Some other blockchains claim to be more secure than most of the other ones, such as Elrond which would have a Nakamoto coefficient of 267 according to this post: https://www.reddit.com/r/elrondnetwork/comments/p3tqxk/security_on_elrond_network_independent_research/. As the calculation has been made by Elrond team and cannot be easily checked, it has to be cautiously used, although the effect on coin value can be good.
The Nakamoto coefficient might not have any impact on the value of the coins associated to the blockchains above in the short term. However, in the longer term, it will help the big investors decide if they put a huge amount of money on these blockchains or not. Therefore, it is a powerful tool to assess the value of these blockchains and their associated coins in the long term, and also to help you decide which blockchains to use for your assets.
Below a few links to earn more cryptos...
- Crypto.com: earn $25 CRO / Referral code: 439km3wyjs
- Elrond: earn $10 EGLD
- Legion Network: earn $5 LGX