Decentralization refers to a process in which an organization’s activities, especially tasks related to planning and decision-making, are distributed or delegated away from a central authoritative location or group and entrusted to smaller factions within the organization.
Decentralization is one of the three fundamental concepts of blockchain. Based on the projects introduced so far in the cryptocurrency industry, it can almost be said that any blockchain-based network can achieve at most two of the three pillars of blockchain: decentralization, security, and scalability (speed). The Ethereum blockchain, as the most practical network in the world of digital currencies, particularly suffers from the issue of centralization of its network nodes. Most of Ethereum’s active nodes are run through centralized web service providers like Amazon.com. According to Vitalik Buterin, decentralization of Ethereum’s nodes is one of the main challenges of this project, and achieving full decentralization could take up to 20 years.
The Concept of Decentralization and Its Applications
Decentralization refers to a process in which an organization’s activities, particularly tasks related to planning and decision-making, are distributed or delegated away from a central authoritative location or group to smaller factions within the organization. The term decentralization is not exclusive to the world of cryptocurrencies and blockchain; its use dates back to the emergence of this new industry.
The term “decentralization” was first used in the 1800s by Alexis de Tocqueville, one of the most prominent thinkers of 19th-century France. In his writings, he stated: “The French Revolution began with the aim of moving towards decentralization… [but] in the end, it led to the expansion of centralization.”
Throughout the 19th and 20th centuries, the ideas of liberty and decentralization were developed by anti-government political activists who called themselves “anarchists,” “libertarians,” and even “decentralists.” Tocqueville, who was a proponent of this idea, believed that “decentralization not only has administrative value but also civic value, because it increases citizens’ interest in public affairs and trains them to exercise their freedom. It also becomes the most effective balance tool against a central government’s claims (even one supported by an impersonal and collective will).”
Another example of the application of decentralization was the reaction of the United States to the concentration of wealth, economics, and political power in the early 20th century. This reaction took the form of a decentralized movement, which viewed large-scale industrial production as a factor in destroying middle-class shopkeepers and small producers. It promoted increased ownership and a return to small-scale living.
In summary, decentralization concepts have been applied in dynamic management in businesses and private organizations, political issues, law and public administration, technology, economics, and monetary matters. Thus, this topic is not limited solely to computer systems and the digital world. Nevertheless, we will specifically focus on decentralizing two top cryptocurrency projects, Bitcoin and Ethereum, and assess which one is more decentralized.
Decentralization in Bitcoin and Ethereum
Bitcoin and Ethereum, as the leading projects in the cryptocurrency world, pursue different goals, and their designs reflect these differences. Bitcoin aims to be truly decentralized, serving as global money for all people, a reliable store of value, a medium of exchange, and a unit of account. In contrast, Ethereum has been developed as a distributed computing platform for various applications, including games, social media, tokenizing assets, and financial services. For this reason, these two projects are not entirely comparable in some respects.
However, according to some participants in this ecosystem, Ethereum and many of the tokens issued on its blockchain are seen as investment options, just like Bitcoin. Therefore, investors often compare Bitcoin and Ethereum. While Ethereum appears to offer more current flexibility and a faster rate of change, Bitcoin provides superior monetary policy, a more decentralized ecosystem, and real security, and it has garnered greater trust from investors to date.
Decentralization is a critical feature of Bitcoin and will be essential for its continued success and integrity. Bitcoin must be decentralized at multiple levels to maintain its security, resistance to censorship, and open and transparent monetary policy, which it has achieved so far. However, Ethereum has shown itself to be more centralized than Bitcoin in several aspects, particularly when considering past network failures, arbitrary changes in its infrastructure, and the distribution of its network nodes, which make its centralization more apparent compared to Bitcoin.
Bitcoin Nodes vs. Ethereum Nodes
In Bitcoin’s decentralization, nodes are important for three key reasons:
- First, Bitcoin’s rules are enforced by nodes, not miners or developers. Therefore, it is essential that computers worldwide operate a large number of network nodes.
- Second, the more nodes in the network, the more guaranteed the network becomes. Bitcoin’s network will remain continuously accessible. Bitcoin, compared to the largest tech companies in the world like Google, Amazon, and Facebook, has had more uptime, which is unprecedented.
- Third, Bitcoin’s distribution and a large number of nodes ensure that any user can process their transactions without censorship. Nodes are responsible for transmitting transactions to miners. If a user can only connect to centralized or malicious nodes, their transaction could be hindered.
For these reasons, it can be concluded that Bitcoin’s blockchain is designed to grow slowly and in a limited manner, and all changes within it are compatible. Ensuring that any user can participate as a node in the network using common, accessible hardware is a priority for Bitcoin developers.
This, however, is not the case for the Ethereum network. In terms of memory and computing power, Ethereum’s nodes require more resources. This forces many users to rely on third-party entities to access the blockchain. In the past, several exchanges have been forced to halt trading or withdrawals of Ethereum due to the offline status of a small number of network nodes. This has exposed Ethereum’s vulnerabilities compared to Bitcoin.
Bitcoin’s blockchain is designed to grow slowly and in a compatible manner with all changes, while Ethereum’s network faces challenges due to the higher resource demand for running its nodes. This exposes Ethereum’s network to vulnerabilities that Bitcoin avoids.
Ethereum’s Decentralization Vulnerability and Solutions
According to data from the blockchain explorer Etherscan (etherscan.io) and a recent report from Cointelegraph, there are approximately 6,000 active nodes on the Ethereum blockchain, with most of them (over 70%) being run through centralized web service providers like Amazon Web Services. Many experts claim that this puts Ethereum’s blockchain at risk of a centralized point of failure.
Vitalik Buterin, Ethereum’s co-founder, has also expressed concern about this issue, saying: “Node centralization is one of the biggest challenges the Ethereum network will face, and we must make it cheaper and easier for people to become an Ethereum node.”
In a specialized speech on the blockchain world, Buterin highlighted six key problems that need to be addressed to solve Ethereum’s node centralization. He explained: “One of these six issues is making it easier for people to run nodes technically. Implementing ‘stateless’ protocols is one of the most important practical methods.”
“Today, hundreds of gigabytes of data are required to run a node [on the Ethereum network]. With ‘Stateless Clients,’ a node could be run with minimal (almost zero) data requirements.” -Vitalik Buterin, Ethereum Co-founder
Methods Based on Stateless Protocols
The concept of statelessness refers to eliminating reliance on centralized service providers for verifying network activities. According to the Ethereum Foundation, true decentralization will be impossible if node operators cannot run Ethereum’s code on moderately priced, affordable hardware. Buterin also explained that making the execution of nodes stateless is a key part of Ethereum’s roadmap, with its main steps planned for the upcoming upgrades known as “The Verge” and “The Purge.”
“In the long term, there is a fully validated plan for maintaining Ethereum nodes, where you will literally be able to run them on your mobile phone.” -Vitalik Buterin
While stateless Ethereum nodes form a central part of Ethereum’s updated roadmap, Buterin noted that it is unlikely that we will be able to address these technical issues shortly. He stated: “This issue will eventually be resolved, but it will probably require a 10-year timeframe, maybe even 20 years.”
Buterin believes that the most important step in the current period is reducing Ethereum’s centralization by simplifying documentation, lowering barriers to distributed staking, and ensuring that staking is safer and more widespread, making it easier for people to share their Ethereum coins. Buterin also emphasized that the most pressing concern for the Ethereum blockchain is achieving higher levels of scalability, which must be addressed before the decentralization of nodes.
At present, Ethereum’s scalability protocols are equipped with Zero-Knowledge Proof (ZKP) systems, and these solutions have been praised by many in the Ethereum community. ZKP-based technologies work by offloading computation and storage from the main Ethereum chain, improving Ethereum’s throughput and acting as a crucial tool for achieving scalability. In future research papers, we will explore Zero-Knowledge Proof technology and its regulatory implications.
