# Exploring the Impossibility of Decentralization

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Contents

## Exploring the Impossibility of Full Decentralization

In our quest to escape from existing corrupt centralized systems, we may believe that it’s possible to achieve complete decentralization. However, recent academic research shows that this is unfeasible — at least sustainably.

For example, Bitcoin’s Proof-of-Work (PoW) mechanism relies on many different nodes to “mine,” or verify and facilitate transactions. These miners are rewarded a portion of transaction fees and a shot at winning the Bitcoin block reward, which is currently 12.5 bitcoins or about $115,000– a not insignificant prize dished out about 144 times per day. This has incentivized the creation of “mining pools,” or a collection of nodes that work together and divide the prize among the operators. Mining pools have taken what would otherwise be a decentralized utopia and coalesced a degree of centralization. The current state of Bitcoin mining is far from a single entity controlling the network with a 51% lion’s share, but it still highlights the downfalls of decentralization. There are cryptocurrencies that utilize different consensus mechanisms such as Proof-of-Stake and Delegated-Proof-of-Stake, and they manage to address some of Bitcoin’s drawbacks (such as high energy costs to mine), but they still leave the glaring decentralization issue. A particularly noteworthy concept is that Bitcoin, a network with no single individual party dictating its future, has gravitated towards centralization on its own. Centralized entities may receive some flak in the cryptocurrency and blockchain community, but they are at least able to enforce and control certain elements, a task nearly impossible for a theoretical, fully decentralized entity. ## Do we really need full decentralization? The core tenet of decentralization, at least among the common blockchain ethos, is that decentralization insulates the network from tyranny and corruption, a duo that has plagued human governance and economics since the dawn of organized civilization. The same concepts that power Adam Smith’s “free market” philosophy that underpins modern economics encourage decentralization as long as every party is properly incentivized (mining rewards) and has access to somewhat similar resources (electricity, reasonable utility costs, etc) as the next. The glory of today’s blockchains isn’t so much derived from the idea of a utopian decentralization, but more so as a rebellion against the status quo of centralized banks dictating the economy, individuals being tethered to the success of their government, and the ability for large tech corporations and banks to shut down financial accounts at will. There are several degrees of “decentralization”, and even though not “perfect,” even smaller decentralization improvements can be disruptive to the existing “centralized” status quo. The goal is to figure out which areas will be impacted first; and which are the top use cases given the infrastructure’s properties (security, decentralization, scalability). Best Binary Options Brokers 2020: • Binarium Best Binary Options Broker 2020! Good Choice for Beginners! Free Trading Education, Free Demo Account! Get a Sign-Up Bonus Now! • Binomo 2nd in our ranking! For example, think of the idea of a decentralized “Uber,” a popular thought experiment in the blockchain entrepreneurial community. When someone needs a car to pick them up, what would they prefer: a nearly immediate connection to a driver courtesy of an efficient centralized server, or waiting for minutes and potentially hours for the transaction to be verified and processed? ## Final Thoughts Although the push towards absolute decentralization is unfeasible, and in reality, decentralization benefits vary across use cases. Simply put, we don’t need decentralization for everything– centralization tends to work just fine for most things, and it shouldn’t be viewed as an enemy of what the blockchain movement seeks to accomplish. Ultimately, blockchain is simply just another technology to be leveraged to solve certain problems. Once upon a time, centralization was the solution to the disorganized chaos of the unpredictable. Our ancestors who lived in groups tended to live longer and better lives than individuals not in groups. These groups evolved into tribes that utilizes some form of centralization (leadership, hierarchy, enforced order) that protected its members and utilized resources more efficiently. Eventually, tribes expanded and, however indirectly, ended up becoming countries that function using the same centralized mechanics. Decentralization uses the evolution of the Internet and technological infrastructure to create systems that don’t require a centralized entity’s direct oversight. However, decentralized entities can only function within the scope of a centralized society. Today’s projects are able to enjoy both the benefits of existing within the confines of a centralized society and the possibilities enabled by blockchain and the Internet. While full decentralization might be impossible, there’s no reason to fuss. Views expressed in posts (including podcasts, videos, and social media) are those of the individual Albaron Ventures personnel quoted therein and are not the views of Albaron Ventures LLC or its respective affiliates. The posts are not directed to any investor or potential investor, and do not constitute an offer to sell or a solicitation of an offer to buy any securities and may not be used or relied upon in evaluating the merits of any investment. The posts are not intended to be, and must not be taken as, a basis for any investment decision. No investment in any fund advised by Albaron Ventures LLC may be made prior to your receipt of definitive offering documentation and due diligence materials. Past performance is not indicative of future results. All information provided herein is for informational purposes only and should not be relied upon when making any investment decision. The contents herein — and available on all public Albaron Ventures online content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own legal, business, tax, and financial advisors concerning any investment. ## Exploring the Impossibility of Decentralization In our quest to escape from existing corrupt centralized systems, we may believe that it’s possible to achieve complete decentralization. However, recent academic research shows that this is unfeasible — at least sustainably. For example, Bitcoin’s Proof-of-Work (PoW) mechanism relies on many different nodes to “mine,” or verify and facilitate transactions. These miners are rewarded a portion of transaction fees and a shot at winning the Bitcoin block reward, which is currently 12.5 bitcoins or about$115,000– a not insignificant prize dished out about 144 times per day.

This has incentivized the creation of “mining pools,” or a collection of nodes that work together and divide the prize among the operators. Mining pools have taken what would otherwise be a decentralized utopia and coalesced a degree of centralization. The current state of Bitcoin mining is far from a single entity controlling the network with a51% lion’s share, but it still highlights the downfalls of decentralization.

There are cryptocurrencies that utilize different consensus mechanisms such as Proof-of-Stake and Delegated-Proof-of-Stake, and they manage to address some of Bitcoin’s drawbacks (such as high energy costs to mine), but they still leave the glaring decentralization issue.

A particularly noteworthy concept is that Bitcoin, a network with no single individual party dictating its future, has gravitated towards centralization on its own. Centralized entities may receive some flak in the cryptocurrency and blockchain community, but they are at least able to enforce and control certain elements, a task nearly impossible for a theoretical, fully decentralized entity.

## Do we really need full decentralization?

The core tenet of decentralization, at least among the common blockchain ethos, is that decentralization insulates the network from tyranny and corruption, a duo that has plagued human governance and economics since the dawn of organized civilization.

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## Title: Impossibility of Full Decentralization in Permissionless Blockchains

Abstract: Bitcoin uses blockchain technology and proof-of-work (PoW) mechanism where nodes spend computing resources and earn rewards in return for spending these resources. This incentive system has caused power to be significantly biased towards a few nodes, called mining pools. In fact, poor decentralization appears not only in PoW-based coins but also in coins adopting other mechanisms such as proof-of-stake (PoS) and delegated proof-of-stake (DPoS). In this paper, we target this centralization issue. To this end, we first define (m, \varepsilon, \delta)-decentralization as a state that satisfies 1) there are at least m participants running a node and 2) the ratio between the total resource power of nodes run by the richest and \delta-th percentile participants is less than or equal to 1+\varepsilon. To see if it is possible to achieve good decentralization, we introduce sufficient conditions for the incentive system of a blockchain to reach (m, \varepsilon, \delta)-decentralization. When satisfying the conditions, a blockchain system can reach full decentralization with probability 1. However, to achieve this, the blockchain system should be able to assign a positive Sybil cost, where the Sybil cost is defined as the difference between the cost for one participant running multiple nodes and the total cost for multiple participants each running one node. On the other hand, we prove that when there is no Sybil cost, the probability of reaching (m, \varepsilon, \delta)-decentralization is upper bounded by a value close to 0, considering a large rich-poor gap. To determine the conditions that each system cannot satisfy, we also analyze protocols of all PoW, PoS, and DPoS coins in the top 100 coins according to our conditions. Finally, we conduct data analysis of these coins to validate our theory.

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