Is bitcoin actually decentralized

Examples of centralization!

  1. Ripple  – 97% of the circulating supply of XRP is held by the top 100 accounts
  2. Cardano – 33% centralized of the circulating supply of ADA is held by top 100 accounts
  3. Stellar – 95% centralized of the circulating supply of XLM is held by top 100 accounts
  4. IOTA – 62% centralized of the circulating supply of MIOTA is held by top 100 accounts
  5. NEO – 70% centralized of the circulating supply of NEO is held by top 100 accounts
  6. Nano – 63% centralized of the circulating supply of NANO is held by top 100 accounts
    CEO of coinbase Brian Armstrong

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Stop. Calling. Bitcoin. Decentralized.

https://en.wikipedia.org/wiki/Bitcoin

>Bitcoin is a cryptocurrency and worldwide payment system.[8]:3 It is the first decentralized digital currency

Wikipedia and everyone else keeps repeating “decentralized” word in every mention of Bitcoin.

It is not.

>Decentralization is the process of distributing or dispersing functions, powers, people or things away from a central location or authority

Bitcoin was supposed to be decentralized, but it didn’t end up this way. And never will. Proof-of-Work is dead.

I don’t even need words to explain it, just look at the beautiful charts below! (Let’s obviously assume 51% get the power to do something)

  1. “Centralization” is decentralization with 1 entity being the center

2. Still centralization…

3. Is it… oh no, still centralized (the right one controls more than 50%, i.e. they are being the most important center)

4. Let’s get back to Bitcoin. (hashrate distribution from https://blockchain.info/pools)

Technically, you need to hijack 3–4 entities to control it. Let’s pretend AntPool, BTC.com, ViaBTC, F2pool, BTCtop are non-colluding businesses and not just one entity pretending to be 5 — which I really doubt. GHash failed because they publicly demonstrated owning 51%. Chinese miners are smarter than that 😉 Look how nicely the hashrate is divided with no clear leader…

It is still heavily centralized, because decentralization=3 (short of 2%) is just 2 entities away from a single center. But this is the chart that shows _miners_. Miners are physically located in countries. Let’s get back to real world because:

Countries have full authority over physical entities located in them, including miners.

5. Here is the graph of non-China vs China

Now please look back at the 3rd chart. Anything familiar?

Bitcoin, Ethereum, and all Proof-of-Work coins are cen-tra-li-zed. You can quantify it by business entities (3–4) or by countries (1). These are most obvious one, but you can also quantify centers by hosting companies (All use AWS? Centralized), citizenships/physical locations of CEOs and so on. You get the idea.

Either way, it fits into the term centralization. When someone says they are decentralized, point them here.

This is not “bad but we can live with it”. This is game over. Bitcoin is 1000 times slower version of UnionPay — they both work at mercy of China. And I’m somewhat sure UnionPay has better appeal in their eyes..

It’s only security-through-obscurity that keeps it allegedly “decentralized” in eyes of the public.

In case if you’re really that stubborn to repeat the mantra “miners don’t get to set the rules” look into another article that shows how double spending works https://medium.com/@homakov/how-to-destroy-bitcoin-with-51-pocked-guide-for-governments-83d9bdf2ef6b

It’s true that you can’t change the consensus itself — there’s no in-protocol on-chain governance (which I think is stupid, and Tezos/Dfinity/Failsafe will make way more sense and move faster), but it doesn’t matter. As long as you can mine empty blocks, or re-write the history by mining on other branch, you keep the blockchain hostage.

If you say “but they have no profit in hacking it” you miss the whole point of decentralization. You don’t engineer blockchain’s security on does the center profit from exploiting you _now_. Paypal won’t ban your bank account today either — but they certainly can do it later when they need to. That’s why “nothing-at-stake” and “cost-of-attack” are nowhere as important as just number of entities you need to compromise.

And no hard-fork to different PoW alg can save you from that, because you will start with a much weaker hashrate, form square one, back to 2009-level of security.

Only switch to Proof of Stake can, possibly, help.

This is how true decentralization must look like (51 entities to hijack), both for business entities and for countries where they are located. 100 businesses in 100 different countries have much lower chance of colluding than 3 companies under 1 government.

Article on medium written by Egor Homakov

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Exchanges — killers of decentralization

Many experts say that when cryptocurrency exchanges came to the stage they killed the decentralization of bitcoin. They offer clients to store their coins safely, also they provide services for buying, selling, converting cryptocurrency into fiat and vice versa. That sounds good, so most people prefer to store their funds using such services, but let’s face the truth — they are banks for cryptocurrency. And when exchange has a hacker attack, or some bug, or its founder decides that, one — honesty is not the best politics after all, and two — whoever said money can’t buy happiness simply didn’t know where to go shopping, he or she just takes all the clients’ money and lives happily ever after.

Whales — big fish in cryptoworld

One more problem, typical to cryptoworld, is the existence of so called “bitcoin whales” — individuals or groups who own vast amounts of bitcoins and can sometimes affect the market towards their preferential price. Satoshi Nakamoto, elusive and mysterious, seems to be the largest whale with estimated asset of more than 1, 000, 000 bitcoins. Luckily, it seems that he so far has spent only 500 bitcoins, as programmer Sergio Demian Lerner found out by examining ledgers, and hasn’t affected the market.

Mining — available not to everyone

Mining of bitcoins is now became almost unavailable for average person. You can’t just buy graphic card and start mining bitcoins with your computer — first, your bills for electricity will be larger than profit, and secondly, process of mining will take so long that maybe only your grandchild will get few bitcoins (if he will be lucky enough). To say nothing of noise and heat, that will make living in the same apartment with mining equipment terrible. People and corporations who can afford it, build whole plants for mining, and this process constantly becomes more difficult. Reality is you have to buy bitcoins for price that is dictated by the market and above mentioned “whales”.

Recently there have been a lot of accusations, that because of extreme popularity and spread of bitcoin mining in China “mining centralization” occurs. Experts estimate that around 71% of bitcoins are now mined there. China not only produces most of mining equipments, but also huge mining farms are located there, taking advantage of cheap electricity. China is also a leader in number of mining pools — collaborations between individual miners and mining companies. China is home to four of the five largest Bitcoin mining pools. Before Beijing banned ICOs (Initial Coin Offerings), China accounted for 90% of all bitcoin trade. Having so much mining power centralized in one country put in doubt decentralization of Bitcoin and exposes the Bitcoin network to a worrying degree of political risk.