Decentralization is one of blockchain’s most fundamental principles and perhaps the most important distinction between it and traditional database systems. Through decentralization, blockchains distribute control and decision making across a network of participants, eliminating the need for a centralized authority. This is what makes blockchain so cost-efficient and secure. It prevents manipulation, promotes transparency and makes it censorship resistant.
Given the importance of decentralization, the blockchain community has long debated the best way to go about measuring it, so they can determine which networks are more decentralized, but the industry has struggled to come up with any suitable metrics.
Tezos co-founder Arthur Breitman became the latest voice to weigh in on this debate when he spoke to The Yellow Podcast. He argued that it’s not possible to gauge how decentralized a network is purely by counting the number of validators it has, as some have suggested.
“Decentralization is a means to an end, and that end is trust minimization and censorship resistance,” he said. “ I think the most important thing you have to look at is how likely is it that the system is going to be censored. And I don’t think validator count is really such a good metric for that.”
According to Breitman, the crypto industry can learn a lesson from traditional industries, where businesses and sometimes regulators perform competitive analyses to try to ascertain if an industry is monopolistic. In these analyses, the most important consideration is not so much if there is a dominant monopoly, but rather freedom of entry to the market. In other words, if the monopoly that dominates the industry misbehaves, is it possible for others to come in and participate and put an end to its dominance?
It’s the same thing in blockchain, the Tezos founder argued. If someone notices that censorship is taking place, does that network have the mechanisms in place to take corrective action and put a stop to it? If so, then it can be considered sufficiently decentralized, he claimed. “In a decentralized network, if one validator decides that, okay I’m not going to finalize any block that doesn’t contain a certain type of transaction, it will leave a trace of this censorship,” Breitman explained. “If the blockchain is properly decentralized, you can monitor this and take corrective action when you see this happen.”
Breitman called into question whether a project such as Stripe’s Tempo blockchain can be considered decentralized. He admitted he doesn’t know all of the technical details, but from what he understands it’s going to be “very corporate”, with multiple well known technology giants all participating as validators.
“I’m sure they could engineer it in such a way that you’ll have 100 validators and they’ll each have only 1% of the validating power, and these kinds of metrics will make it look brilliantly decentralized,” he said. “But really, this is not what matters. Because everyone is just pretending that anyone who is a validator will not be colluding with anyone else. You can’t be sure of that.”
More important, Breitman stressed, is whether or not the protocol is set up to prevent censorship from happening. In the example of Tezos, its biggest validator is Coinbase, which controls a significant degree of the network’s “baking power”. But according to Breitman, this is not a concern for the community, because there are mechanisms available to stop it. “If it does try to censor the network, it’s a simple fix at the protocol level. We’ll see it and we’ll be able to deal with it,” he stressed.
Why Proof-of-Stake Enhances Decentralization
A big factor behind Tezos’ decentralization is its Proof-of-Stake consensus mechanism, which the project actually pioneered back in 2018. Breitman said there’s a great deal of misunderstanding about how PoS’s security model actually works, and pointed out that it’s quite different from Bitcoin’s Proof-of-Work.
A lot of people believe PoW is extremely secure, Breitman said, because if someone gets control of 50% of the network’s mining power, they’ll still have to pay a considerable cost to pull off any attack. And as the attack proceeds, the value of the token will decline significantly, making the attack economically unsustainable.
But Breitman says there are still risks with PoW because of the way blockchain has evolved. These days, more than one token lives on Bitcoin, for example. So if someone controls 50% or more of its hashing power, they can manipulate these other tokens, which can still be very valuable, forcing double spends for example.
“These attacks are very different from what you might face in the PoS world,” Breitman explained. “Attacks on PoS networks are still possible, but they’re not really very practical. That’s because any attack will leave an indelible trace, and other network participants will be able to see what’s going on and cut it off. So you can stop the attacker completely, and the chain will carry on.”
According to Breitman, this is where PoS blockchains have an advantage in terms of security. The disincentive is not so much the economic penalty the attacker might face as a result of being slashed – essentially, losing their staked capital – but more the fact they won’t be able to keep doing it again and again. “They might not mind owning 50% of the supply and getting slashed once,” he said. “But if you slash them again and again, it becomes exponentially more expensive for someone to keep attacking the network.”
What’s more, such a mechanism doesn’t require more than a few validators to set up, Breitman pointed out. “Even if you have relatively few validators, the fact you can remove them almost permanently from the network – because they’ll be forced to reacquire the tokens they’ve lost – is extremely powerful,” he insisted.
On the other hand, this doesn’t happen in Proof-of-Work networks, because there is no mechanism to strip someone of the hashing power they have acquired. “You can’t really get rid of an attacker in that way with Proof-of-Work,” Breitman stated.
Keep The Entry Barrier Low
Still, Breitman did agree that more validators will always be beneficial to Proof-of-Stake networks, and that is why Tezos has made it extremely accessible. He said the blockchain currently has between 200 and 300 validators, because both the financial and computing requirements are relatively light, and the rewards are generally a bit higher than most other networks.
To become a Tezos “baker”, individuals must stake a minimum of 6,000 XTZ, which is currently worth around $3,100, but they must also run a node. But unlike networks such as Ethereum, which necessitate running a powerful server, it’s possible to run a Tezos node on something such as a cheap Raspberry Pi computer, which costs as little as $100, Breitman said. As for the rewards, these range from around 7% to 16% APY, depending on the network conditions.
“With a Raspberry Pi you can connect to the Tezos network and you can use a ledger as well to secure your key,” he said. “This has always been a property of Tezos, whereas it will cost a lot more money if you want to be a validator on some of the larger networks, including some that have launched recently. But they don’t get much more performance out of this. So it’s a weird thing.”
Breitman admitted Tezos still has a problem with the concentration of baking power, or hashing power, in the hands of large crypto exchanges. But this is something that can be solved over time. “I think we need to encourage people to get off the exchanges and use the blockchain more,” he said. “We must get people to rely more on self-custody. That’s the key to changing this.”
Watch the rest of Breitbart’s interview here:
