Are Blockchains Decentralized?

Bitcoin pools 9/1/18

In April 2014, more than 8 years ago, I posted this comment:

Gradually, the economies of scale you need to make money mining Bitcoin are concentrating mining power in fewer and fewer hands. I believe this centralizing tendency is a fundamental problem for all incentive-compatible P2P networks. ... After all, the decentralized, distributed nature of Bitcoin was supposed to be its most attractive feature.

That October I expanded the comment into Economies of Scale in Peer-to-Peer Networks, in which I wrote:

The simplistic version of the problem is this:

• The income to a participant in a P2P network of this kind should be linear in their contribution of resources to the network.
• The costs a participant incurs by contributing resources to the network will be less than linear in their resource contribution, because of the economies of scale.
• Thus the proportional profit margin a participant obtains will increase with increasing resource contribution.
• Thus the effects described in Brian Arthur's Increasing Returns and Path Dependence in the Economy will apply, and the network will be dominated by a few, perhaps just one, large participant.

Ethereum miners 11/07/21

Ever since I have been pointing out that the claim that permissionless blockchain networks are decentralized is gaslighting, and thus the benefits that decentralization is supposed to deliver are not in practice obtained. Real-world permissionless blockchains such as Bitcoin's and Ethereum's have remained centralized all this time.

Now, a DARPA-sponsored report entitled Are Blockchains Decentralized? by a large team from the Trail of Bits security company conforms to Betteridge's Law. They examine this and many other centralizing forces affecting a wide range of blockchain implementations and conclude that the answer to their question is "No". Below the fold I comment on each of their findings (in italic), then discuss Professor Angela Walch's analysis of the problems of using "decentralized" in a legal context.

Pseudonymity And Cooperation

Ever since I explained the reasons why in 2014's Economies of Scale in Peer-to-Peer Networks, I have been pointing out that Bitcoin isn't decentralized, it is centralized around five or fewer large mining pools. Ethereum is even more centralized; last November two pools controlled the majority of Ethereum mining. On 13^th June 2014 GHash controlled 51% of the Bitcoin mining power. The miners understood that this looked bad, so they split into a few large pools. But there is nothing to stop these pools coordinating their activities. As Vitalik Buterin wrote:

can we really say that the uncoordinated choice model is realistic when 90% of the Bitcoin network’s mining power is well-coordinated enough to show up together at the same conference?

and Makarov and Schoar wrote:

Six out of the largest mining pools are registered in China and have strong ties to Bitmain Techonologies, which is the largest producer of Bitcoin mining hardware

Source

Although as I write it is still true that 5 pools control the majority of Bitcoin mining (and 3 pools control the majority of Ethereum mining), over the last 18 months there has been a significant change in the traceability of Bitcoin mining pools. The graph shows that the proportion of pools actively obfuscating their identities has increased, so that "unknown" has been close to and occasionally above 50% of the Bitcoin mining power. It was bad enough that "trustless" meant trusting 4-5 pools, mostly in cahoots with Bitmain. But now "trustless" means trusting a group of miners who are actively hiding their identities and, for all you know, could be one large confederation. Alternatively, they could fear attacks from other miners!

Earlier this month How ‘Trustless’ Is Bitcoin, Really? by Siobhan Roberts drew attention to Cooperation among an anonymous group protected Bitcoin during failures of decentralization by Alyssa Blackburn et al that pushed Bitcoin's centralization problem back to its earliest days. Below the fold I discuss the details.

Microeconomics Of Cryptocurrencies

The Microeconomics Of Cryptocurrencies by Hanna Halaburda, Guillaume Haeringer, Joshua S. Gans and Neil Gandal is an extremely valuable survey of the relevant research literature. Their abstract reads:

Since its launch in 2009 much has been written about Bitcoin, cryptocurrencies and blockchains. While the discussions initially took place mostly on blogs and other popular media, we now are witnessing the emergence of a growing body of rigorous academic research on these topics. By the nature of the phenomenon analyzed, this research spans many academic disciplines including macroeconomics, law and economics and computer science. This survey focuses on the microeconomics of cryptocurrencies themselves. What drives their supply, demand, trading price and competition amongst them. This literature has been emerging over the past decade and the purpose of this paper is to summarize its main findings so as to establish a base upon which future research can be conducted.

Below the fold, a few comments.

Where Did The Number 3 Come From?

The Keepers Registry, which tracks the preservation of academic journals by various "keepers" (preservation agencies), currently says:

20,127 titles are being ‘kept safe’ by 3 or more Keepers

The registry backs this up with this page, showing the number of journals being preserved by N keepers.

Source

The NDSA Levels of Digital Preservation: An Explanation and Uses from 2013 is still in wide use as a guide to preserving digital content. It uses specifies the number of independent copies as 2 for "Level 1" and 3 for "Levels 2-4".

Alicia Wise of CLOCKSS asked "where did the number 3 come from?" Below the fold I discuss the backstory.

Backblaze On Hard Disk Reliability

It has been a long time since I blogged about the invaluable hard drive reliability data that Backblaze has been publishing quarterly since 2015, so I checked their blog and found Andy Klein's Star Wars themed Backblaze Drive Stats for Q1 2022, as well as his fascinating How Long Do Disk Drives Last?. Below the fold I comment on both.

You Can't Have One Without The Other

I made the point of this post in my EE380 talk, and several times before that. But it was easy to miss, being buried half-way through a long argument. I'm rewriting it here to make it easy to link to specifically.

I can paraphrase an important part of the epidemic of Blockchain Gaslighting as "cryptocurrencies have all sorts of problems but blockchains are a fantastic new technology with all sorts of uses that are nothing to do with financial speculation". Below the fold I show why this is false.