Which is the Most Decentralized Cryptocurrency?
Some people believe that blockchains are by nature decentralized, yet decentralization is a range, with some platforms being more decentralized than others. Today, we'll look at the most decentralized crypto and why this matters.
Decentralization - What is it and Why Does it Matter?
A blockchain is akin to a distributed ledger. These databases are run on a network of nodes and are implemented in software. Anyone can participate in the network by running a node because bitcoin blockchains are permissionless, and the code for popular nodes is open source. Decentralized networks are intended to limit the amount of trust blockchain users must place in one another. This helps prevent them from exerting power or control over one another in ways that harm the network's performance.
Although decentralized networks are widely employed in blockchain technology, a blockchain application cannot be labeled as decentralized or not. Rather, decentralization should be introduced in stages to all aspects of a blockchain program.
Better service can be accomplished by decentralizing the management and access of an application. Although decentralization has some disadvantages, such as lower transaction throughput, the advantages of increased stability and service levels exceed the disadvantages.
It doesn't mean that it is entirely decentralized because it's a blockchain app. The goal of every blockchain solution is to meet the needs of its users, which may or may not include specified levels of decentralization.
Decentralization Measure
It's difficult to assess a crypto network's decentralization, especially when comparing networks with unique designs. Fortunately, blockchains have many common features that help measure a network's decentralization. Still, investors should be aware that decentralization is a continuum, and most popular blockchains are neither fully centralized nor fully decentralized.
Different elements play a role in determining the decentralization of the two types of blockchains — proof-of-work and proof-of-stake.
Proof of stake is a consensus algorithm for verifying new bitcoin transactions. Proof of stake ensures that data saved on the network is genuine because blockchains lack centralized regulating agencies.
The number of stake pools or validators, the distribution of the token supply among those validators, and the proportion of token supply staked are all indicators of proof-of-stake blockchain.
Users and nodes — both non-mining and mining — make up proof-of-work blockchains like Bitcoin. The decentralization and security of these networks are mostly determined by their hash rate and the number of entities distributed among them.
So What's the Most Decentralized Crypto?
Let's look at some of the most well-known cryptocurrencies to address that question.
1. Bitcoin
Bitcoin is known as a decentralized currency. No central authority controls its creation, issuance, regulation, or management. In other words, the bitcoin network is peer-to-peer, without any centralized point of failure.
There is also a finite amount of bitcoins that will ever exist; this leads to deflation. However, there are ways to create additional bitcoins with a proof-of-work system called "mining." Mining requires high-powered computers, but mining results can provide transaction fees for users if successful.
Bitcoin mining is the process of creating new bitcoins and processing transactions. Mining is a fiercely competitive operation, and the chances of a small miner being chosen to mine a block are slim, compelling small miners to entrust their mining power to large mining pools. Bitcoin has over 12,000 validating networks at the time of writing.
2. Litecoin
Litecoin is similar to bitcoin, except that it uses scrypt instead of SHA256 as its hashing algorithm. As a result, litecoins (and therefore litecoin wallets) are much faster at generating hashes than bitcoin wallets. Additionally, Litecoin has a maximum supply limit of 84 million coins, compared to 21 million for bitcoin.
While the supply cap allows for less fluctuation in price, it also creates a barrier to entry for miners. Because the cost of mining is based on computing power, fewer total coins will mean fewer opportunities to generate revenue through mining.
Litecoin is decentralized compared to its peers, with a worldwide spread node network. However, most nodes are still located in the United States, followed by Russia.
3. Ripple
The ripple payment protocol is essentially a database used to record transactions in real-time. These transactions are confirmed using cryptography, resulting in near-instantaneous transfers.
Its open-source nature makes it possible for any user to verify the validity of their transactions, which provides security for both senders and recipients. In terms of decentralization, Ripple's developer community is much smaller than Bitcoin or Ethereum.
4. Ethereum
Ethereum (ETH), a major Bitcoin alternative, is a decentralized software platform that allows smart contracts and decentralized apps (dApps) to be written and run without third-party downtime, fraud, control, or intervention.
The worldwide reach of Ethereum nodes is also fairly centralized, with the United States accounting for 41% of nodes and Germany accounting for 15%. While the overall number of ETH addresses has been steadily increasing throughout 2017, it stands at 821K. This is despite 20% of ETH being contained in only ten (Whale) ETH addresses.
Final Word
While all cryptocurrencies are intended to be decentralized, some of their features tend to become centralized as time passes and people utilize them.
Bitcoin tops the charts in terms of development structure, thanks to its distributed developer network and anonymous creator, Satoshi Nakamoto. Then there's Monero, Litecoin, and Ethereum. Almost all of them run their blockchains using a centralized client.
In terms of client distribution, Bitcoin, Litecoin, Ethereum, and Monero are all centralized, with one client running most of the nodes. BTC leads the charts in trade volume, followed by ETH, LTC, and XMR.
Bitcoin seems to be the most decentralized coin in the grand scheme of things. It balances development and the mining ecosystem to provide users with more reliable and open access.
