Decentralization is the foundation of blockchain technology, promising a more robust and censorship-resistant alternative to centralized systems. But are industry-leading protocols as decentralized as they claim to be?

Decentralization can be measured across several dimensions. At first glance, the number of devices participating in the validation or block mining process of a network is one of the simplest and most obvious metrics. But other factors also contribute to enhancing or eroding decentralization:

• Host facilities: Where nodes are hosted directly affects who controls them. If thousands of devices host nodes on facilities controlled by one or a few devices, it puts the network at risk. For example, Hetzner unilaterally shut down 40% of Solana validators in 2022.
• Jurisdiction: Geographic location is relevant because it provides diversification of risk related to adverse or unpredictable regulatory measures.
• Client software: A blockchain with nodes all running on a single client software has a higher risk of errors and vulnerabilities than those on single code.

The following table compares the degree of decentralization of leading protocols using these dimensions:

Source: Solana Decentralization Report, Ethernodes Geographical Location of ETH Nodes, Tron Nodes, Polkawatch

Decentralization has a cost: the longer the distance between peers, the higher the latency. Latency is essential for validators to complete assigned tasks within a reasonable period of time. Failure to meet these deadlines meant that validators lost rewards, increasing the incentive to be placed close to larger clusters of peers, increasing centralization. The larger the block size or the shorter the block duration, the higher the incentive for centralization.

In other words, many protocols indirectly penalize decentralization by diminishing the rewards for those who dare to install infrastructure in areas where no one else does. Pioneers carry the burden of blockchain resilience with no incentive other than to do what needs to be done, where it needs to be done.

Few protocols provide some form of predictable and explicit protocol-level incentives (eg, higher priority in proposing blocks, participation in higher issuance rewards) to drive network decentralization. In most cases, the incentives are administered as arbitrary grants or delegations from the Protocol Funds to specific network participants on an individual basis.

If decentralization remains the cornerstone of blockchain’s ethos, the industry must act accordingly. Protocols must adopt mechanisms that encourage nodes to operate in different jurisdictions, be hosted in independent facilities, and use varied client software (if available). Without such incentives, the natural pull of economic efficiency will drive centralization and threaten blockchain’s very own promise: resistance to censorship.

The future of blockchain depends on networks designed to remain decentralized, not by accident or goodwill, but by design.

Let’s ensure that decentralization is not just an aspiration, but a measurable, incentivized reality.