Quantifying Ethereum network Decentralization

The primary advantage of Bitcoin and Ethereum over their legacy alternatives is widely understood to be decentralization. However, despite the widely acknowledged importance of this property, most discussion on the topic lacks quantification. If we could agree upon a quantitative measure, it would allow us to:

Measure the extent of a given system’s decentralization
Determine how much a given system modification improves or reduces decentralization
Design optimization algorithms and architectures to maximize decentralization

Figure 1:Hashrate distribution among miningpools

(source:https://miningpoolstats.stream/ethereum on Date 29/04/2022)

As the wave of adoption in decentralized blockchains continues, it is important we pay attention to how decentralized these blockchains are. One metric to gauge the decentralized nature of a blockchain would be the Nakamoto Coefficient. The Nakamoto Coefficient represents the number of validators (nodes) that would have to collude together to successfully slow down or block any respective blockchain from functioning properly. The higher the Nakamoto Coefficient relative to the total number of validators, the lower the risk of collusion disrupting a decentralized blockchain.

Top 8 mining pools together own 90% of the total hashrate. This put a lot of power in the mining pools. We can define the Nakamoto Coefficient as the minimum number of validator require to perform 51% attack.

Nakamoto coefficient=2(ethermine+f2pool together own 54% of the hashrate)

Preprint

Preprint

Quantifying Ethereum network Decentralization