Decentralization is a fundamental characteristic of public blockchains, as it helps to ensure that the network is secure, resilient, and resistant to censorship or interference. However, not all blockchain projects prioritize decentralization to the same degree, and some may even sacrifice it in favor of other goals such as scalability.
Even well-established projects like Ethereum, which are advanced in their development, can still have weaknesses in terms of decentralization. This is why it is important to be able to compare different blockchain protocols objectively in terms of their decentralization. By doing so, we can better understand the strengths and weaknesses of different projects and how they measure up in terms of this critical aspect of blockchain technology.
Importance of Decentralization of Public Blockchains
Decentralization is a key feature of public blockchain networks, as it helps to ensure that the network is secure and resistant to censorship or interference. In a decentralized blockchain, power is distributed among a large number of participants, rather than being concentrated in a single entity. This can make it more difficult for any one actor to control or manipulate the network.
Despite the fact, that decentralization is among security and scalability, a very important indicator to assess Layer1 Blockchains, a measurement system like we know it from other industries currently does not exist.
What is the Edinburgh Decentralisation Index (EDI)
Here, the Edinburgh Decentralisation Index comes into play.
The Edinburgh Decentralization Index (EDI) is an index developed by the University of Edinburgh in collaboration with IOG, one of the builders of Cardano, to measure the level of decentralization of cryptocurrencies. From this index, it is possible to have a practical and objective measurement of how decentralized a blockchain project is
Why Do We Need the EDI?
There are already several different approaches and metrics that are used to measure decentralization in cryptocurrencies, such as initial token distribution metrics, the number of individual staked wallets, and the total number of validator nodes or stake pools. These metrics can help indicate the degree of decentralization in a particular cryptocurrency, but they may not provide a complete picture.
The EDI is intended to add additional value to these existing metrics by providing benchmarking criteria for establishing and measuring decentralization. If successfully applied to the cryptocurrency space, the index could help to lay the foundations for realizing true decentralization in the blockchain industry.
The development of the EDI is a significant step towards understanding the decentralization of blockchain networks. Once completed, the index will provide a standardized and objective method for measuring the decentralization of cryptocurrencies such as Bitcoin, Ethereum, Cardano, and others. This will be particularly useful for comparing the decentralization of different blockchain networks and identifying which ones are the most decentralized.
Since the EDI is currently “under development”, we can only look at a rough methodology & metric system applied.
The goal of the EDI is to provide a comprehensive and reliable measure of decentralization in blockchain networks. To achieve this, the EDI will utilize a range of metrics from various disciplines, including Economics, Information Theory, and Network Science.
Layer of the EDI
To achieve this goal, the EDI dissects blockchain systems into multiple layers, called “strata,” which encapsulate various categories. The strata that the EDI focuses on include: API, Tokenomics, Consensus, Network, Software, and Hardware.
The EDI then analyzes the parameters of these layers in a technical and impartial manner, to assess the decentralization of a particular blockchain network.
Each of these strata plays a vital role in understanding the decentralization of a blockchain network. The EDI will examine each stratum in order to identify any potential risks to decentralization in relation to relevant properties of blockchains, such as safety, liveness, privacy, and stability.
For example, centralization at the consensus level could increase the risk of attacks on transaction validation, centralization at the tokenomics level could increase the risk of price manipulation, and centralization at the network level could increase the risk of failure or censorship via infrastructure.
To assess decentralization, the EDI will collect metrics across different dimensions of blockchain systems and assign weights to these metrics. The metrics will then be condensed into a single index that represents the overall decentralization of a system. By doing so, the EDI aims to provide a comprehensive and objective measure of decentralization in blockchain networks.
So, with the EDI, each blockchain will have an easy-to-understand quantitative assessment, which can be accessed by anyone to make informed decisions.
The Team behind the EDI
The Index is being developed by a team of researchers and engineers from the University of Edinburgh and Input Output HK (IOG). The team works in collaboration with the Blockchain Technology Laboratory (BLT), supervised by Dr. Daniel Woods, a lecturer in cybersecurity at the University of Edinburgh, and Prof Aggelos Kiayias, the chief scientist at IOG and the University of Edinburgh’s Chair in Cybersecurity and Privacy.
Next Steps To Finalize The EDI:
The next steps in the development of the EDI include
- finalizing the methodology,
- developing a measurement framework,
- elaborating on core metrics,
- collecting data,
- and releasing the EDI and its open-source software.
Once the EDI is finalized, it brings transparency, systematization, quantification, and objective measurement frameworks to the blockchain industry, which is currently dominated by hype, information asymmetries, and unstructured data.
For Whom Is The EDI?
The EDI will help to bring clarity and understanding to the decentralization of different blockchain protocols, allowing regulators, users, and policymakers to make informed decisions about their adoption and use.
- For regulators, the EDI can provide decision support on whether a particular cryptocurrency constitutes a financial instrument.
- For users, the EDI can help them make informed decisions about which blockchain is safer for their transactions.
- For policymakers, the EDI can impact the adoption of future decentralized systems by providing a standardized measure of decentralization.
The EDI could also lay the groundwork for the characterization of digital assets. With some debate over how assets should be classified, decentralization has become an important factor. As a result, the EDI could become a useful tool for lawmakers and regulators
In addition, the software that collects and analyzes data for the EDI will be open source. This means that anyone can understand the theoretical foundations of the EDI and reproduce its results.
By delivering the first objective and comparable decentralization index to the crypto space,
IOG and the University of Edinburgh are dedicated to advancing awareness about decentralization in the blockchain industry. They are actively involved in the development of an index that will allow for the objective measurement of decentralization across different protocols. This will increase transparency and allow for more informed comparisons between different blockchain projects. By setting a standard for decentralization, the EDI is helping to drive the industry forward and ensure that decentralization remains a key focus in the development of blockchain technology.