Blockchain provides the solution to the age-old setbacks of centralized capital and the inevitable results of inequalities. Before investing money, you should also ask how decentralized are the leading cryptocurrencies.
Three key classes can be applied as helpful diagnostic tools. First, the query to bear in mind is whether miners are incentivized or are rewarded for keeping the network safe. Secondly, you should think of the number of entities that control over 50% of the mining power. This also includes the mining pools and is something we should pay attention. For instance, if two or three mining pools power over 50% of the supply of currencies, you should think of the possible consequences of hacking. Lastly, we should look at the wealth concentration in these networks. For example, if the top 100 addresses are diagnosed in the currency’s ledger, what percentage of money supply do they control?
Thus, with these key factors in mind, you need to think about the performance of the top currencies, and what portrays on the entire status of decentralization in the digital currency environment. Well, the short answer is that – there is no big decentralization. Bitcoin, for instance, is the leading cryptocurrency around, and rewards mining, whereby people point their computing power to the system, and get transaction fees and receive block rewards during the transaction processes of that block. Nevertheless, the top-three mining pools control over 50% of the currency’s hashing power. Ripple and ethereum did not fare better as both coins have over 50% of their respective resources controlled by small- read centralized –pools.
You need to know the reason centralization is happening. The simple answer is: this is the reason humans work – we centralize power to achieve greater efficiency. However, we should also be searching for available resources. People keep their funds in centralized systems, for instance, exchanges, because individual resources such as mobile wallets are not powerful enough.
