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The new study reveals that Bitcoin is not as decentralized as you would think

Jan 27, 2018 Posted /  1672 Views

The new study reveals that Bitcoin is not as decentralized as you would think

Though cryptocurrency market has seen a lot of fluctuations in recent days still the currency has gained a lot of market capitalisation which has now crossed over $700 billion. At present, Bitcoin and Ethereum are leading the market as they are the favourites in the cryptocurrency space with almost 70% market share. They have a rapidly growing ecosystem with an assorted and active community across the world.

One of the significant rationales behind why these particular cryptocurrencies are an appealing channel of transaction and asset over the traditional assets and currencies is the fact that these currencies are built on a decentralized network. If we particularly talk about the top two cryptocurrencies- bitcoin and ethereum then the user transactions in their case are submitted to nods across the network who validate the transaction and in return makes the system more faithful than a centralized platform. The decentralization of the network also guarantees that there is no censorship of individual transactions and higher resistance against singular authority.

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Nonetheless, as per the computer scientist Emin Gün Sirer and his team, there could be no such validation on the so-called decentralisation of these cryptocurrency networks since no one till now has prepared a decent evaluation of how decentralised these currencies truly are. In a paper published by the title "Decentralization in Bitcoin and Ethereum Networks" this month, Sirer and his group position that as believed by many around the world, the Bitcoin network isn't as decentralised as you may think. The paper was published after a two-year-long study which converged on Bitcoin and Ethereum networks. Mike Orcutt, an associate editor at MIT Technology Review, writes about the research.

“Perhaps the most striking finding is that the process of verifying transactions and securing a blockchain ledger against attack, called mining, is not actually that decentralised in either system,”

There were many things that were studied during the research. First of all, the researchers discovered that the top four Bitcoin-mining operations had more than 53% of the system’s average mining capacity and with Etherium, top three miners accounted for 61% of the system’s average weekly capacity.

The researchers also discovered that Bitcoins nods were geographically nearer than most other cryptocurrencies in the market. The paper clearly points out to it

“Ethereum’s most likely latencies are centred around 120ms, while Bitcoin nodes tend to be clustered around 50ms. Only 13% of Ethereum latencies are under 100ms, while Bitcoin has a surprisingly high 46%.”

This geographic vicinity among nodes explicitly registers that various Bitcoin nodes are administered in data centres. According to the analysis, 56% of Bitcoin’s nodes and 28% of Ethereum’s nodes belong to an autonomous system that renders committed hosting services, a distinction meaningful at the 1% significance level.

This may not come as astounding to many people as, China has been hosting a maximum of the significant bitcoin 'mining pools' in the world, basically building a geographical centralisation of the mining process. Nevertheless, this raises additional mysteries over the probability of centralisation by miners with added powerful rigs and higher computing capacities.

“Mining on cryptocurrency networks is a complex process that typically requires large computation power,” writes the authors Adem Efe Gencer, Soumya Basu, Ittay Eyal, Robbert van Renesse, along with Emin Gün Sirer.

“With the current mining difficulty of Bitcoin and Ethereum, using commodity hardware to generate blocks is not feasible which centralises the mining process somewhat. However, as long as there are many different entities mining, the system is still decentralised,” the group reasoned.

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