Bitcoin is the first-ever and most successful digital currency. The best part is that its stature has not diminished in the big span of twelve years since 2009. In fact, for a common man, it has become the face of the blockchain world. Even a small downturn in the value of Bitcoin results in the subsequent drop-off in values of all other coins. There are claims that activity patterns of other coins are correlated to that of Bitcoin. Not just speculation, facts tell us how Bitcoin is reigning over the Blockchain world! In this article, we will show the ropes of the incredible features of Bitcoin.
To date, there are around 9000 cryptocurrencies in circulation, and each one of them claims to be decentralized. Of course, decentralization is the key characteristic of a blockchain network and it is owing to decentralization that even the most critical and vulnerable digital assets can be securely stored on blockchains.
If every crypto coin is decentralized, then what’s the point of even mentioning that a coin is decentralized?
Because of the sheer variance in the way each blockchain mines, runs consensus, decides on the miners, and enacts scalability solutions among other differences. Due to this variance, centralization seeps into the decentralized architecture of the blockchains. For example, a blockchain that prioritizes scalability opts to decide the miner nodes based on staked tokens. This mechanism favors the nodes with more tokens over those with lesser tokens. It also leads to the selection of the same or similar set of miner nodes and rewards them with a higher mining power than the rest. This power in a few hands is what eventually leads to centralization.
This pitfall triggers studies around the degree of decentralization guaranteed by a blockchain. The most interesting part is that even after quantifying decentralization, Bitcoin takes the lead in the degree of decentralization.
The mining process in blockchains handles verification of transactions and the inclusion of blocks containing transaction information onto the chain. Blockchains are called decentralized because the verification of transactions is done in a decentralized manner with the help of miners. So, the extent of decentralization depends upon the selection of miners in the network. Though other factors such as oracles and DApps account for the decentralization, mining is the core and first step towards decentralization in cryptocurrencies.
To measure the decentralization in the selection of miners two popular metrics, called the Gini’s Index and the Shannon Entropy are used.
Gini’s Index captures the inequality among miners. The inequality is measured with reference to the mining power of the miners. A lower value of the Gini Index represents high decentralization and vice-versa.
A recent study measured the Gini Index of Bitcoin for the year 2019. The study found that Gini’s Index is lower when compared to another blockchain giant Ethereum, thus, stating that bitcoin has a higher degree of decentralization. Gini’s index of Ethereum is more stable as compared to Bitcoin but when it comes to the degree of decentralization, Bitcoin takes the lead.
Shannon Entropy is a metric like Gini’s Index. It is a common metric used to measure randomness in various domains. Here, Shannon Entropy is used to measure the randomness in the distribution of mining power among miners. Thus, a higher Shannon Entropy indicates a higher degree of decentralization, while a lower value indicates a lower degree of decentralization.
In terms of Shannon Entropy, a recent study found that Bitcoin has a higher value. This means that considering the degree of decentralization in the selection of miners, bitcoin is a robust platform.
The above two metrics are for measuring the level of decentralization of miners in the network. Miners are a type of node in the blockchain network. Other than miners there are two more types of nodes in a blockchain network i. Full nodes ii. Light nodes. Now let us see the overall decentralization, i.e. considering all the three types of nodes (Miner, Full, Light).
This is a recent empirical study on the distribution of nodes in Bitcoin and Ethereum. According to this study, Bitcoin nodes are found to be more clustered when compared to Ethereum. Here, clustering is in terms of geographic distance, which means that nodes of Bitcoin are from nearer locations as compared to Ethereum. On further analysis, the study also finds that more than half the nodes of Bitcoin are dedicated hosting services. The existence of such hosting services on Ethereum is comparatively low, at only 28%. This is a negative sign for the decentralization of nodes. This hints that the overall user-base of Bitcoin is not as decentralized as that of Ethereum.
The concluding lines for Bitcoin with regards to decentralization can be that Bitcoin apart from being the most popular coin also outdoes others in terms of decentralization as far as mining is concerned. However, in terms of the user base, it is still not distributed as Ethereum.
Turing Completeness represents the prowess of a machine/system/algorithm in solving complex computable problems, given the necessary resources such as memory, time, and others. This property is indeed one of the most desirable properties of any system, as it makes any problem decidable. Blockchains for the task of mining, running smart contracts, and hosting several DApps, need computational power at large scales. The capability of a system to solve any such problem is desirable as it can adapt to different types of user needs.
However, the surprising part is that Bitcoin is not Turing Complete while other coins like Ethereum and NEO are Turing complete. That means that Bitcoin cannot respond to each user’s needs.
Note: Some Blockchain developers believe that Turing Completeness is not very desirable as it can result in infinite time taking transactions. They also believe that it compromises the degree of decentralization in the network. On the other hand, some developers believe that Turing Completeness must be a mandatory property as the user base of crypto is rising. This will result in a surge of user requirements and will lead to arduous computational problems.
Bitcoin offers a resilient decentralized architecture for mining procedures, which results in an extremely secure network of Bitcoin. However, users are still not globally distributed and are clustered around a few particular locations. The distribution of users isn’t really a deciding factor for measuring the decentralization of a blockchain system, but it is a factor to be worked upon.