15. The myth of Crypto decentralization

Monday 21st February 2022

A lot of people swear by the importance of decentralization in the blockchain & crypto world. But how decentralized is crypto?

The myth of Crypto decentralization

A lot of people swear by the importance of decentralization in the blockchain & crypto world. But how decentralized is crypto?

As of 17 February, there are over 17,500 cryptos and the total market capitalization of Cryptos is around $1.9 trillion. Of this, the share of the top 5 cryptos by market capitalization is:

  • Bitcoin (BTC): 41.8%
  • Ethereum (ETH): 18.8%
  • Tether (USDT): 4.1%
  • BNB (BNB): 3.6%
  • USD Coin (USDC): 2.8%

The top 5 cryptos account for more than 71% of the entire crypto market!

Now, let's see how decentralized the top 5 Cryptos are.

1. Bitcoin

Bitcoin transactions are "confirmed" by miners using a process called "proof of work".

Bitcoin's "hash rate" is the amount of computing and processing power in the network. If malicious miners get 51% of the hashing power, they could cause devastating problems such as:

  • double-spending coins, and
  • prevent certain transactions from being verified.

According to statistics from btc.com, over the last 1 year, this is the hash rate share of the top 5 mining pools:

  1. AntPool: 15.16%
  2. F2Pool: 14.86%
  3. Poolin: 11.81%
  4. ViaBTC: 11.10%
  5. Binance Pool: 10.18%

The top 5 mining pools control 63.11% of the hash rate!

2. Ethereum

Ethereum also runs on proof-of-work and the top 2 mining pools control over 51% of Ethereum's hash rate! Source: https://www.avax.network

3. Tether (USDT)

Tether (USDT) is a 100% centralized fiat-backed stablecoin issued by a Hong Kong-based company called Tether. The company keeps commercial paper and other reserves that are equal in USD value to the number of USDT in circulation.

4. BNB (BNB)

BNB is the native token of the popular Binance Smart Chain which chooses the top 21 highest-stake nodes as validators. The minimum amount for self-delegation is 10,000 BNB. That's over $4 million! This makes the Chain highly centralized. (Source: https://docs.binance.org/faq/bsc/val.html)

5. USD Coin (USDC)

USD Coin (USDC) is a 100% centralized fiat-backed stablecoin issued by the Centre Consortium which has 2 founding members - peer-to-peer payment services company Circle, and the Coinbase cryptocurrency exchange.