Towards a holistic assessment of centralization in distributed ledgers

The objective of this research is to understand the multidimensional nature of centralization in blockchain and study its implications. Blockchain allows the execution of trustless financial transactions over a peer-to-peer network without requiring a centralized validation authority. This shift from centralized authorities to a trustless environment is possible because of incentive engineerings’ clever use of decentralization: the associated decentralization process relies on an appropriate incentive structure to shape participants’ behavior in order to align with the system goal of only validating legitimate transactions. Since the introduction of Bitcoin, the field of blockchain has seen widespread attention from industry and academia, so much so that the original novel contribution of Bitcoin, i.e., decentralization of controlling power, may have been overlooked somewhat due to its assumed fundamental existence for the functioning of such crypto-assets. Hence it is not surprising that recent studies have reported on an increasing trend towards centralization in Bitcoin and other major cryptocurrencies. The objective of this research is to provide an encompassing framework within which centralization of blockchain can be assessed and its implication discussed. In order to achieve the research objective, this study employed a multimodal research approach. Phase one included surveying and synthesizing the blockchain literature towards designing an initial taxonomy of centralization concerns for blockchain. The resultant taxonomy aggregated the myriads of definitions, conceptualization, and dimensions used to describe and measure blockchain centralization, segmenting them based on a generic architecture of blockchain. In phase two, the study focuses on the most widely reported on centralization dimension (consensus) while widening the perspectives applied to centralization (in line with the literature-survey’s findings) to reflect blockchain’s complex socio-economic and technical nature. That is, the study explores the relationship between blockchain’s socio-economic aspects, such as the exchange rate, and consensus-based centralization. In the final phase, we demonstrate the taxonomy’s utility to foster further research, by exploring a less well-reported centralization dimension of cryptocurrencies: wealth concentration. This study is particularly interesting as the assumed fundamental existence of decentralization in blockchain-based cryptocurrencies has led to the consideration of cryptocurrencies as the future of money. Empirical findings from phase three infer that this assumption may be premature due to the emergent inequality in major cryptocurrencies. Major contributions of this thesis include: C1 A more comprehensive understanding of centralization in Blockchain and its potential implications through the development of a taxonomy of centralization. C2 An evaluation of the state of centralization for the prominent cryptocurrencies Bitcoin and Ethereum, using the taxonomy, and resulting in the identification of centralization avenues that are prone to centralization. C3 Illustration of how a multi-perspective review of a known form of centralization can assist in better understanding the security of blockchain systems such as Bitcoin. C4 Demonstration of the utility of the taxonomy for promoting future research of less reported forms of centralization, by exploring wealth concentration. It is intended that this initial taxonomy (C1) will, ultimately, enable researchers to add more aspects of centralization as they become known, providing them with a vocabulary of centralization that will allow them to evaluate the centralization of blockchain instances. In particular, this thesis accentuates the significance of considering the social aspects of blockchain centralization while investigating security. Thus, this thesis provides insights into centralization’s multidimensional nature and to leverage that multi-dimensional nature to assess its implications for different aspects of the blockchain. At its core, this work is seen as a step towards standardizing the centralization discussion in the field of blockchain.