Decentralization is important to digital crypto-currencies; it is what ensures that they are secure and independent from any particular national government. The vast majority of cryptocurrencies such as Bitcoin are decentralized, and there is a strong argument that such decentralization is a core attribute of a blockchain which cannot be removed without turning the blockchain into a regular database with few advantages over older software systems.

But there are degrees of decentralization and, as I described in my article on Bitcoin’s decentralization, popular digital currencies tend to become more centralized over time. A great deal of thought and effort is required to maintain a high level of decentralization and this is something which many coins, including Bitcoin itself, have really struggled with.

So I thought it would be worth asking the question – what is the most decentralized coin?

Unfortunately, there is no simple answer to that question as this is not something that can easily be quantified and measured, and because there are different type of centralization which may affect a digital currency and it is difficult (if not impossible) to say which is the most damaging.

But, nevertheless, there are many alternatives to Bitcoin out there which have implemented various different measures to combat the types of centralization we have seen in Bitcoin and even to enhance the degree of decentralization from the start.

Reducing Node Centralization

One area of concern is that as a crypto currency grows it will become more and more expensive to run a full node, meaning that they will end up with fewer validating nodes and that these nodes will become increasingly centralized in the hands of a small number of people or organizations.

One way to improve this situation is to provide some kind of reward for running a node. Although Proof of Stake coins have their own problems, they do at least seem to encourage a larger proportion of users to run a node and therefore offer some protection against centralization of node ownership. Over time, however, it is uncertain whether these rewards would be sufficient to make running a node profitable for smaller holders without needing a high level of inflation to the coin supply, meaning that you would still probably end up with only a small number of the largest ‘whales’ running all of the nodes. This is related to another (and arguable worse) centralization problem which PoS coins suffer from due to the richest users controlling the Proof of Stake minting process, and getting ever richer as a result.

Perhaps a better approach is to take measures to limit the amount of computer resources used by a node, therefore making it cheaper and easier for regular people to use a full node for their own wallets.

I am sure that there are many different ways to do this and I would love to get some comment about the different solutions being tested out. Personally I rate CryptoNite’s ‘mini blockchain‘ system as the most viable one that I have seen so far.

Maintaining Decentralized Mining

Probably the biggest area of concern for Bitcoin is the centralization of mining. This happens via large mining farms gaining an advantage due to economies of scale, and even more dramatically through mining pools. The two largest Bitcoin mining pools control around half of the mining power at the moment.

There are several different solutions out there in altcoin-land which aim to reduce the centralization of mining.

ASIC Resistant algorithms

ASICs are specialist microchips developed for cryptocurrency mining which offer much greater speed and efficiency compared to ordinary off-the-shelf computer equipment. Because this hardware requires a large investment and can be complex to use, it is less easily accessible to regular consumers; in some cases these specialist chips are not made available to the general public at all (or at least not to start off with) as they are instead used by their manufacturers to gain a large advantage over other miners.

This is a powerful centralizing force and many altcoin developers have tried to combat it by creating new algorithms for their coins. These ASIC-resistant algorithms either make it very difficult to create specialist chips, or offer only a very small advantage to anybody able to do so. Litecoin’s Scrypt algorithm and Dash’s X11 are famous examples of this.

There are two problems with these attempts. Firstly, they often only slow down the production of ASICs rather than preventing it from happening. ASICs are now available for both Scrypt and X11, for example. The second problem is that any algorithm which successfully limits mining to the use of CPUs, offering no advantage to either GPUs (graphics processors which are available from ordinary computer shops but are more powerful than ordinary processors) or ASICs, is a very attractive target for the owners of ‘botnets’ who can illegally take control of many thousands of computer’s and harness their power for mining – meaning that they are potentially no more decentralized than any other coin.

So the most decentralized option is probably a coin which gives an advantage for GPU mining but does not have ASICs. Currently Ethereum is the best example of this, but this whole area shows that the degree of decentralization is liable to change over time, because like Scrypt and X11, given sufficient success for a coin somebody will always come up with an ASIC design eventually, no matter how difficult you make it.

Multi-Algorithm Coins

An interesting way to circumvent this problem is to use multiple algorithms, allowing each miner to choose whichever one is best suited to themselves. Most mining farms focus on a specific algorithm, and ASICs by their nature can only be used for a single algorithm. Since in this system botnets may compete against ASIC farms which may compete against GPU miners, a single entity is unlikely to dominate every one of these areas and therefore a coin which can be mined using a wide array of different algorithms is much more resistant to mining centralization.

The first coin to pioneer this approach was Myriad coin, but it has since been taken up by DigiByte as well.

This approach also offers some limited protection against pool centralization (due to the cost of adding new algos to a pool).

Anti-Pool Measures

Spreadcoin introduced a method of combating centralization via mining pools by forcing the miner to sign each block with the private key of the address the generated coins will be sent to. This means that every member of a pool would have access to any coins held in the address everybody else was mining to – meaning that any member of the pool could steal everybody’s money at any time. This makes pools almost impossible to set up, unless they are limited to a small group of miners who have a very high level of trust between each other.

This is very effective at increasing the level of decentralization, but it should also be noted that mining pools serve a useful function of allowing miners to gain a predictable revenue stream rather than just winning the occasional large lump sum. This means that it may be difficult for a coin using this method to gain a large hash rate (and hence high degree of security) and if it did then it would probably be difficult for small miners to participate as there may be a significant chance that they would never receive a reward over the whole lifetime of the computer they are using to mine with – so perversely this could end up encouraging another form of centralization were it become successful enough to pay for a high hash rate.

Making Everyone a Miner

The most radical way to get rid of centralized mining is to get rid of mining in its current form entirely. This was done in ‘Proof of Stake’ currencies for different reasons but, as mentioned above, the benefits to decentralization are uncertain and according to some experts the level of security is also reduced.

A more interesting solution to get rid of the current mining paradigm has been introduced by a new coin called RaiBlocks, which uses a ‘block lattice’ design rather than a conventional block chain. In this design every user effectively becomes a miner, performing a small amount of PoW whenever they send and receive coins.

This system is quite new and untested, and it also does introduce a network of ‘representative nodes’ which users can designate if they are using a low powered device or for when the blockchain becomes to large for their machine – at this stage it is very difficult for me to assess the impact of these representative nodes on the degree of decentralization this coin will have over the long term. But as it stands it appears to me to offer huge benefits in terms of decentralization, and it is certainly one of the more interesting solutions.