Blockchain Ethics

[class 4 readings] quantifying decentralization

About “Quantifying Decentralization”:

I’ll refrain from discussing all of what I found great about this piece, and instead focus on what I found surprising, and questions that came to mind.

Refresher: this is the piece that proposes and describes the Nakamoto coefficient, inspired by the Gini coefficient and Lorenz curve, as a way to measure the degree to which cryptocurrencies are decentralized. The method analyzes the subsystems of the larger cryptosystem, and quantifies the number of entities that would need to be compromised within each subsystem as a means to quantify the vulnerability of the larger system.

For example, the piece uses this methodology to point out that (at time of writing in 2017) more than 51% of the Bitcoin mining power is located in China, so if countries are considered in the framework of subsystems, the decentralization of Bitcoin could be severely compromised by the Chinese government if the government were to size these resources.

When the piece started, I expected the concept of “subsystem” to be about the network topology of distributed blockchains, and finding vulnerable “subnetworks” within this topology. The authors took a different approach by describing subsystems as components of the (Bitcoin) ecosystem (i.e. developers, currency owners, clients, mining, etc), which seemed novel.

The authors do a good job describing why too much centralization of “owners” of bitcoin could be dangerous for the network, as the government would only need to seize the accounts of a few individuals to seize a large control of the currency.

However, the authors do not justify that a low decentralization is problematic for the other subsystems they describe. For example, is it problematic for there to only be a few large contributors to the software? Writing software and creating a formal review process of proposed changes (e.g. reviewing pull requests) could be difficult in a flattened system of many contributors.

This piece later makes an interesting point that leads me to a question: ‘if one considers “founder and spokesman” an essential subsystem, then the minimum Nakamoto coefficient for Ethereum would trivially be 1, as the compromise of Vitalik Buterin would compromise Ethereum.’ Has this line of reasoning kept Satoshi private? Perhaps the original publisher(s) of the Bitcoin paper recognized that the system they proposed would ultimately be stronger, with its decentralization more difficult to compromise, if they remained anonymous.