A deep dive into cryptocurrency decentralization

In recent years it has become well known that cryptocurrency networks such as the Bitcoin network are energy intensive systems. As of 2024, Bitcoin mining operates on more than 16 gigawatts of power demand, responsible for around 80 megatonnes of annual carbon emissions. Ethereum proved in 2022 that it is possible to replace this energy intensive (proof of work) mechanism with a more sustainable alternative known as proof of stake. As a result of this change, Ethereum reduced its total power demand by at least 99.85%.  However, while this was the most obvious impact of the change, it should be kept in mind that such a software change affected Ethereum in more ways that one. In particular, the Bitcoin community tends to argue that this software change has made Ethereum less decentralized and less secure.

Digiconomist has now added a new deep dive into the decentralization of cryptocurrencies to examine these claims in more detail. This new content explores how (de)centralization takes place in cryptocurrency networks when proof-of-work or proof-of-stake mechanisms are employed. Moreover, it also highlights other aspects of blockchain (de)centralization that aren’t exclusively related to the aforementioned mechanisms. By doing so, it is shown that centralization and decentralization in blockchain technology are not binary values, but rather a spectrum in which each software design will have its own unique landscape of risk factors that may impair decentralization.  A summarizing visual was added to the Bitcoin Energy Consumption Index page.

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