Cardano & Ethereum: Assessing Decentralization

Decentralization is a foundational principle of blockchain technology. Decentralization means there is no central source of truth or power - and conversely, no single point of weakness. If done well, decentralization is about tools that offer users security, transparency, and community governance. Decentralization isn’t a starting point, it’s a destination; a forest fire is decentralized, but it starts with a single spark.

When we look at systems that are aiming for decentralization, it can be interesting to look at the path they are taking to get there as a way to understand what is working, what is still in progress, and how we might like to participate as builders or users. In this series we are learning about different facets of blockchain by comparing Ethereum and Cardano, so let’s take a peek at how these two networks are answering the question of decentralization.

Understanding Decentralization in Blockchain

Decentralization in blockchain refers to the distribution of power and control away from a central authority. This is evidenced in the technical side of what a blockchain does: multiple validator nodes check and record every transaction. However, it also involves governance aspects; decisions about the network are made by a widespread community rather than a centralized body. Work that is done on and for the network might aim to be similarly decentralized.

Ethereum: Progressive Steps Towards Decentralization

Ethereum, initially reliant on a proof-of-work (PoW) consensus mechanism, faced criticisms over centralization, as PoW often leads to mining power consolidation. However, with the recent transition to proof-of-stake (PoS) in the ‘Merge’ upgrade, Ethereum has made a significant move towards decentralization:

• PoS Consensus: PoS lowers the entry barriers for participation in network validation, allowing more users to become validators. This reduces the risk of centralization in the hands of a few large mining pools. There is still the requirement of 32 Eth but there are mechanisms to self validate with 8 Eth.

• Sharding: Planned in the upcoming ‘Surge’ phase, sharding will distribute the network’s data processing load among many nodes, further decentralizing the network.

• Community Governance: Ethereum’s governance is still evolving, with decisions largely influenced by core developers and the community through Ethereum Improvement Proposals (EIPs).

Cardano: A Methodical Approach to Decentralization

Cardano adopts a more structured approach to decentralization, gradually moving through its roadmap:

• Ouroboros Protocol: Cardano’s PoS protocol, Ouroboros, is designed to ensure a high degree of decentralization, with ADA holders participating in block validation and network governance.

• Decentralization Parameters: Cardano has systematically adjusted its network parameters to gradually shift control from the founding entities to the community.

• Voltaire Era: This upcoming phase focuses on introducing a fully-fledged governance system, allowing ADA holders to directly influence the future direction of the network.

Comparison with the Wider Ecosystem

Compared to other blockchains, Ethereum and Cardano both rank high in terms of decentralization efforts. However, other, newer blockchains, show us that there are many ways to think about this:

• Polkadot (DOT): Polkadot introduces a novel concept of a multi-chain network, where various blockchains can interoperate and share security. Its consensus mechanism is a nuanced variation of proof-of-stake, called Nominated Proof-of-Stake (NPoS), which aims to enhance network security and decentralization. In terms of governance, Polkadot employs a sophisticated model involving various stakeholder groups, ensuring a decentralized decision-making process.
• Algorand (ALGO): Algorand uses a Pure Proof-of-Stake (PPoS) consensus mechanism, which is designed to minimize the possibility of centralization and ensure full participation of all coin holders in the validation process. This model reduces the barriers for participating in the consensus process, thus spreading influence more evenly across its network.
• Tezos (XTZ): Tezos focuses heavily on a self-amending ledger and a unique on-chain governance model, which allows stakeholders to vote on protocol upgrades. This feature not only ensures decentralization in decision-making but also avoids hard forks, which can be divisive in a blockchain community.
• Cosmos (ATOM): Cosmos introduces an ‘Internet of Blockchains’ concept, with a focus on interoperability and scalability. It uses a variation of PoS called Tendermint consensus, which is designed to be more decentralized and democratic. The Cosmos governance model allows token holders to vote on proposals, ensuring community-driven evolution and decision-making.
• Avalanche (AVAX): Avalanche boasts a novel consensus mechanism known as Avalanche consensus, which claims to offer high throughput, low latency, and a more robust approach to decentralization compared to traditional PoW and PoS systems. It allows for multiple individual blockchains to operate under one umbrella with a high degree of autonomy and decentralization.
• Solana (SOL): While Solana uses a PoS mechanism, it introduces a unique feature called Proof of History (PoH), which increases efficiency and throughput, aiming to keep the network decentralized and scalable. The governance aspect is still evolving, with a focus on enabling SOL token holders to have a say in network upgrades and decisions. Each of these projects highlights a different approach to achieving decentralization, whether through their consensus mechanisms, governance models, or both. They represent the ongoing innovation in the blockchain space, continually pushing the boundaries of what decentralized networks can achieve.

For those prioritizing decentralization:

• Ethereum’s Transition: The move to PoS marks a significant step towards decentralization, but Ethereum’s governance structure and influence of large stakeholders remain areas to watch. Lido finance, being the first to offer easy liquid staking controlled over 32% of the staking power in 2022. This centralization of staking power has raised red flags both within and outside of the organization.
• Cardano’s Structured Approach: Cardano’s gradual but steady approach towards decentralization is notable. Its governance model, especially in the Voltaire era, is expected to enhance community participation. The Cardano-backed Edinburgh Decentralization Index (EDI) is a big idea to measure Blockchain Decentralisation on the Consensus Layer by “collecting stratified metrics.” Even though IOG, the engineering firm that built Cardano, seeded the EDI team at the University of Edinburgh’ Blockchain Technology Lab, the EDI is meant to be a tool for measuring decentralization on any blockchain.
• Network Maturity: Ethereum’s longer history and larger community offer a more tested environment, whereas Cardano’s methodical development could lead to a more robust decentralized system in the long run.

Conclusion

Both Ethereum and Cardano are on significant paths towards decentralization, each with unique strategies and challenges. While Ethereum’s recent shift to PoS is a leap forward, Cardano’s phased approach promises a high degree of decentralization upon completion of its roadmap. Decentralization advocates should consider not only the current state of these networks but also their potential for future growth and evolution. In the grand scheme of blockchain technology, both Ethereum and Cardano contribute valuable insights and models for decentralization, playing pivotal roles in the broader ecosystem.