In cryptocurrency circles, Ethereum has become a focal point.
Decentralization is not only Ethereum’s core promise, but also a major source of its appeal. However, as Ethereum upgraded and developed, the community began to question its true degree of decentralization.
This doubt is not groundless. We can often see scattered posts discussing Ethereum becoming centralized from different angles.
Decentralization is not only about the dispersion of power and control, but also about the censorship resistance, security and transparency of the network. Therefore, a deep understanding of how decentralized Ethereum is is crucial for investors, developers, and ordinary users alike.
In order to answer these doubts, Simon Brown, a researcher at Consensys, the parent company of Little Fox Wallet, decided to conduct an in-depth study, starting from a more rational, rigorous and systematic way, using a variety of indicators and models to conduct academic analysis, aiming to reveal the Ethereum a truly decentralized state.
Considering that the original paper is long and requires a certain academic foundation, Shenchao Research Institute has interpreted and organized the paper to help everyone better understand the key arguments.
Original paper Measuring the Concentration of Control in Contemporary Ethereum
1. Methodology: How to measure the degree of decentralization of Ethereum?
Decentralization is a complex concept involving multiple dimensions and angles. In order to accurately measure the degree of decentralization of Ethereum, the author of this paper, Simon Brown, used a variety of statistical methods and indicators to conduct comprehensive measurements.
First, he introduced the Gini index, a statistical measure of inequality commonly found in wealth gap statistics.
Here, it is used to measure the distribution of resources or power in a network. The Gini index ranges in value from 0 to 1, where 0 represents perfect equality and 1 represents perfect inequality. For example, a Gini index value of 0.9 means a high concentration of resources or power in the network.
In addition to the Gini index, researchers also considered: HHI (Herfindahl-Hirschman Index) index: usually used to measure the degree of competition in a specific industry sector;
Shannon index: is sensitive to both the size of the distribution and the diversity of different values in the distribution in the measured data, thus highlighting differences between distributions that are not captured by the Gini index.
Atkinson Index: Based on a social welfare approach, infers how much resources would need to be reallocated to achieve a certain level of equality.
Jensen-Shannon Divergence: Since we are interested in the level of decentralization over time, we use this method to measure the similarity or difference between two probability distributions (Deep Wave Note: In laymans terms, at a certain Before and after these points in time, the degree of centralization of Ethereum is similar, but there are still great differences).
Nakamoto coefficient: This is a measure of the resources or power controlled by the largest n entities in the system. For example, if the top 5 largest entities control more than 50% of the resources, then the Nakamoto coefficient is 5. This provides us with an intuitive sense of the influence of the major entities in the network.
The selection of these indicators and models is not arbitrary. They have been carefully selected to ensure that various aspects of decentralization are captured from different perspectives. This multi-perspective approach ensures the comprehensiveness and accuracy of the results, helping researchers better understand the true situation of Ethereum decentralization.
2. Research objects: Which indicators should be chosen to express the degree of decentralization of Ethereum?
In order to deeply study the degree of decentralization in Ethereum, we first need to select appropriate data and objects. They should be able to represent various important aspects of the Ethereum network and provide meaningful metrics for decentralization.
With the transformation of Ethereum to POS and the emergence of new technologies such as MEV and account abstraction, this paper takes into account all links and processes involved in an Ethereum transaction and summarizes the following suitable indicators to measure Ethereum The degree of decentralization of the workshop:
Based on original Nakamoto coefficients:
Consensus nodes by client
Consensus nodes by country
Execution nodes by client
Execution nodes by country
Distribution of native asset by amount
Amount staked by pool / staking service provider
Indicators related to PBS:
PBS refers to blocks proposed by builders and relayers, which play a key role in the Ethereum network.
Blocks proposed by builder
Blocks proposed by relay
Metrics related to account abstraction:
Number of user operations per bundler
Number of wallets per deployer
Other indicators:
Effective inflation rate adjusted for burn
Percentage of total supply staked
Layer 2 rollups by relative TVL
At the same time, different indicators are also assigned different weights.
3. Results and explanations: How decentralized is Ethereum?
The researchers observed Ethereum for 90 days, from May 23, 2023 to August 23, 2023. The overall research goal is to explore how the dynamic quality of decentralization changes over time within Ethereum, rather than being a static quality that always remains balanced.
A. Discussion of results
As can be seen from the data below, different indices give different results when the research model is applied to the same data. Take the Gini coefficient as an example:
Execution nodes by country: Gini index 0.85
Execution nodes are distinguished by client: Gini index is 0.74
Consensus nodes are divided by country: Gini index is 0.79
Consensus nodes are distinguished by clients: Gini index is 0.57
Distribution degree of native assets: Gini index is 0.91
Amount staked by pool/staking service provider: Gini index is 0.76
Blocks proposed by builders: Gini index 0.78
Blocks proposed by relays: Gini index 0.54
Number of user operations per packager: Gini index of 0.13
Number of wallets per deployer: Gini index of 0.03
Tier 2 rollups by relative TVL: Gini index of 0.87
The values are color-coded for ease of reading, with colors closer to red indicating greater concentration and colors closer to green indicating greater decentralization.
It can be clearly seen that the degree of centralization of Ethereum is very high in terms of the two indicators of stablecoins and pledge pools. This also seems to correspond to the high shares of USDC and USDT in reality, as well as the leading situation of LDO in the liquidity staking track.
B. Results based on original Nakamoto coefficient subsystem selection
Network nodes: When the researchers examined the data based on the measurement dimensions chosen by the original Nakamoto coefficient subsystem, they first applied the Gini index to metrics related to network nodes. A measure of the resources or power controlled by the largest n entities).
From these analyses, we can observe that both “execution nodes by country” and “consensus nodes by country” maintain relatively high Gini index values of 0.85 and 0.79 respectively. This means that these consensus nodes and execution nodes are highly concentrated in certain countries.
C. PBS-related indicators
PBS refers to blocks proposed by builders and relayers. The data shows that the number of blocks proposed by individual builders and relays, as well as the overall concentration in the market, changed significantly between the first and last 24-hour intervals of the dataset. This means that over time, the degree of decentralization of the Ethereum network has increased during this time.
D. Other indicators
When we examine Rollups by TVL, we observe a clear level of concentration, with a 90-day average Gini Index value of 0.87 . These values make sense when looking at the underlying data, where a single rollup (Arbitrum One) holds 54.3% of TVL among all rollups (down from 64.5% at the start of the sample). Next is Optimism, which has a TVL of 25.9%. This means that although multiple rollups exist, two of them hold the majority of the market share.
E. Metrics related to account abstraction
This part of the data focuses on the impact of the ERC-4337 packer. Data Display:
The 90-day Gini Index for User Operations by Bundler ranges from 0 to 1, with a median of 0.6 and a standard deviation of 0.36.
One particular bundler holds 76% of the market share among 13 active bundlers.
These data indicate that the account abstraction space is in its infancy and the infrastructure has yet to see significant maturity or adoption. The ERC-4337 packer has a relatively limited impact on the degree of decentralization of the network, so even a moderate degree of centralization is acceptable.
F. The main index reveals that the overall degree of centralization has become higher
The Master Index gives us a high-level metric for measuring how decentralized the entire network has changed over time (2023/05/23 -08/17).
The Gini index decreased from 21% to 14% across all measurement dimensions, while the HHI index increased slightly from 7.5% to 10%.
significance:
A decrease in the Gini index means an increase in decentralization, or a decrease in concentration.
An increase in the HHI index means an increase in concentration.
Conclusion: Combining these two indices, we can say that, overall, the degree of decentralization of the Ethereum network has increased during this time.
4. Overall conclusion and future prospects
After in-depth research and data analysis, the researchers came to the following conclusions about the degree of decentralization of Ethereum:
Ethereum’s degree of decentralization is dynamic: rather than being a static quality that is always balanced, decentralization is a dynamic quality that changes over time. This means that as the Ethereum ecosystem grows and changes, its degree of decentralization will change accordingly.
Different measurement dimensions show different levels of concentration: for example, execution nodes and consensus nodes show different levels of concentration by country and client classification. This highlights the need for multiple methods to measure decentralization.
Certain segments show a high degree of concentration: for example, in Rollups by TVL, Arbitrum One and Optimism hold the majority of the market share, showing clear concentration.
Ongoing efforts are needed to maintain decentralization: The findings clearly show that the entire Ethereum ecosystem displays centralized elements of control that may be far less controlled than the community would like. This means that maintaining a healthy level of decentralization requires ongoing effort.
future outlook
As the Ethereum ecosystem continues to evolve, so will its components and overall infrastructure. This means that in order to ensure the decentralization of Ethereum, the community needs to continuously monitor and evaluate its degree of decentralization and take necessary measures to ensure its health and stability.
In addition, as new technologies and solutions emerge, new measurement dimensions and methods may be added to decentralized assessment. This requires researchers to constantly update and improve their models to ensure their accuracy and relevance.
Overall, decentralization is not only a technical challenge, but also a shared responsibility of the community and ecosystem. Only through continued effort and collaboration can Ethereum’s decentralization and its long-term success be ensured.
