Which Cryptocurrency Is The Most Decentralized?

More IT leaders are interested in learning more about the Cryptocurrency sector as it develops. The decentralized nature of cryptocurrencies is a key feature that is frequently discussed. Decentralization in the blockchain refers to the transfer of control and decision-making from a centralized organization (person, corporation, or group) to a dispersed network. Decentralizing resource use and access in an application can result in better and more equitable service.

Some individuals believe that blockchains are decentralized by nature, yet decentralization varies per platform, with some being more decentralized than others. Today, we’ll take a look at the most decentralized cryptocurrency and why it’s important.

Decentralization – What is it and Why Does it Matter?

A distributed ledger is similar to a blockchain. These databases are implemented in software and run on a network of nodes. Because bitcoin blockchains are permissionless and the code for popular nodes is open source, anyone can join the network by operating a node. The goal of decentralized networks is to reduce the amount of confidence that blockchain users must have in one another. This keeps them from abusing their position or exerting control over one another in ways that degrade the network’s performance.

Despite the widespread use of decentralized networks in blockchain technology, a blockchain application cannot be classified as decentralized or not. Decentralization should be implemented to all areas of a blockchain program in stages, rather than all at once.

Decentralizing an application’s management and access can result in better service. Although there are certain drawbacks to decentralization, such as lower transaction throughput, the benefits of greater stability and service levels outweigh the drawbacks.

Because it’s a blockchain app, it doesn’t mean it’s completely decentralized. Every blockchain solution aims to suit the demands of its customers, which may or may not involve decentralization at various levels.

Decentralization Measure

It’s difficult to assess a crypto network’s decentralization, especially when comparing networks with unique designs. Fortunately, blockchains have many common features that help measure a network’s decentralization. Still, investors should be aware that decentralization is a continuum, and most popular blockchains are neither fully centralized nor fully decentralized.

Different elements play a role in determining the decentralization of the two types of blockchains — proof-of-work and proof-of-stake.

Proof of stake is a consensus algorithm for verifying new bitcoin transactions. Proof of stake ensures that data saved on the network is genuine because blockchains lack centralized regulating agencies.

The number of stake pools or validators, the distribution of the token supply among those validators, and the proportion of token supply staked are all indicators of proof-of-stake blockchain.

Users and nodes — both non-mining and mining — make up proof-of-work blockchains like Bitcoin. The decentralization and security of these networks are mostly determined by their hash rate and the number of entities distributed among them.

So What’s the Most Decentralized Cryptocurrency?

Let’s look at some of the most well-known cryptocurrencies to address that question.

1. Bitcoin

Bitcoin is known as a decentralized currency. No central authority controls its creation, issuance, regulation, or management. In other words, the bitcoin network is peer-to-peer, without any centralized point of failure.

There is also a finite amount of bitcoins that will ever exist; this leads to deflation. However, there are ways to create additional bitcoins with a proof-of-work system called “mining.” Mining requires high-powered computers, but mining results can provide transaction fees for users if successful.

Bitcoin mining is the process of creating new bitcoins and processing transactions. Mining is a fiercely competitive operation, and the chances of a small miner being chosen to mine a block are slim, compelling small miners to entrust their mining power to large mining pools. Bitcoin has over 12,000 validating networks at the time of writing.

2. Litecoin

Litecoin is similar to bitcoin, except that it uses scrypt instead of SHA256 as its hashing algorithm. As a result, litecoins (and therefore litecoin wallets) are much faster at generating hashes than bitcoin wallets. Additionally, Litecoin has a maximum supply limit of 84 million coins, compared to 21 million for bitcoin.

While the supply cap allows for less fluctuation in price, it also creates a barrier to entry for miners. Because the cost of mining is based on computing power, fewer total coins will mean fewer opportunities to generate revenue through mining.  

Litecoin is decentralized compared to its peers, with a worldwide spread node network. However, most nodes are still located in the United States, followed by Russia.

3. Ripple

The ripple payment protocol is essentially a database used to record transactions in real-time. These transactions are confirmed using cryptography, resulting in near-instantaneous transfers.

Its open-source nature makes it possible for any user to verify the validity of their transactions, which provides security for both senders and recipients. In terms of decentralization, Ripple’s developer community is much smaller than Bitcoin or Ethereum.

4. Ethereum

Ethereum (ETH), a major Bitcoin alternative, is a decentralized software platform that allows smart contracts and decentralized apps (dApps) to be written and run without third-party downtime, fraud, control, or intervention.

The worldwide reach of Ethereum nodes is also fairly centralized, with the United States accounting for 41% of nodes and Germany accounting for 15%. While the overall number of ETH addresses has been steadily increasing throughout 2017, it stands at 821K. This is despite 20% of ETH being contained in only ten (Whale) ETH addresses.

While all cryptocurrencies are intended to be decentralized, some of their features tend to become centralized as time passes and people utilize them.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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