Decentralization is the foundation of blockchain technology, promising a more resilient and censorship-resistant alternative to centralized systems. But are the industry’s leading protocols as decentralized as they claim?
Decentralization can be measured across several dimensions. At first glance, the number of entities participating in a network’s block validation or mining process is one of the simplest and most obvious metrics. However, other factors also contribute to the strengthening or erosion of decentralization:
- Accommodation facilities: Where nodes are hosted has a direct impact on who controls them. If thousands of entities host nodes on facilities controlled by one or a few entities, this puts the network at risk. For example, Hetzner unilaterally shut down 40% of Solana validators in 2022.
- Jurisdiction: Geographic location is relevant because it allows for diversification of risks linked to unfavorable or unpredictable regulatory measures.
- Client software: A blockchain with nodes running on a single client software has a higher risk of bugs and vulnerabilities than those on a single code.
The following table compares the degree of decentralization of major protocols using these dimensions:
Source: Solana Decentralization Report, Ethernodes Geographic location of ETH nodes, Tron Nodes, Polkawatch
Decentralization has a cost: the longer the distance between peers, the higher the latency. Latency is crucial for validators to complete assigned tasks in a timely manner. Failure to meet these deadlines results in missed rewards for validators, increasing the incentive to place themselves near larger peer groups, thereby increasing centralization. The larger the block size or the shorter the block duration, the stronger the incentives for centralization.
In other words, many protocols indirectly penalize decentralization by reducing the rewards for those who dare to deploy infrastructure in territories where no one else does. Pioneers carry the burden of blockchain resilience, with no motivation other than to do what needs to be done, where it needs to be done.
Few protocols provide some kind of predictable and explicit incentive at the protocol level (e.g., higher priority in block proposal, higher issuance rewards participation) 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.
While decentralization remains the cornerstone of blockchain philosophy, the industry must act accordingly. Protocols should adopt mechanisms that incentivize nodes to operate in diverse jurisdictions, be hosted on independent facilities, and use varied client software (if available). Without such incentives, the natural appeal of economic efficiency will drive centralization, threatening the very promise of blockchain: resilience to censorship.
The future of blockchain depends on networks designed to remain decentralized, not by accident or goodwill, but by design.
Let us ensure that decentralization is not just an aspiration but that it is a measurable and incentive reality.
