In August of 2022, Solana reached the Nakamoto Coefficient of 31*, which is the highest value for any blockchain in the world. Here are some figures for comparison: Avalanche has 28, while for Binance, Cosmos, and Near this number is just 7. This never stopped the “fake decentralization” accusations, as well as the “devs” can just shut it down whenever they want” narrative. After spending some time fighting this kind of misinformation all over the Internet, I thought I’d take a moment to write it all down in one document — hence this article.
But first of all, let’s set our definitions straight.
The Nakamoto coefficient is ”a metric first proposed by Balaji Srinivasan, and is defined as the minimum number of nodes that would need to be compromised to alter or stop consensus in a network, thereby preventing some or all new blocks (and therefore the transactions within them) from being confirmed. This process is known as censorship and could impact the entire network, or some subset of users or applications. In proof of stake networks, the Nakamoto Coefficient is the minimum number of nodes required to represent at least 33.4% of voting power…
…A business or state actor wants to maintain a monopoly over a certain type of app on a chain. If they can strike a deal with validators who represent 33.34% of the stake on a blockchain, they can stop the entire blockchain from accepting transactions from competitive businesses by refusing to vote on blocks containing the censored transactions.”
(Source: Solana.com)
There is more about the Nakamoto Coefficient, but the definition above sums up the essential part. Just remember: the higher it is, the better. For now, the Nakamoto coefficient is the most objective and relevant metric in the blockchain space.
This means that judging by its Nakamoto coefficient, Solana is the most decentralized chain in the world.
Let’s look at some numbers. According to the Solana validator health report (a highly recommended read for anyone interested in Solana’s core infrastructure), there are over 3,400 validators in the Solana system, making it one of the fastest-growing blockchains in the world. An average of 95 new consensus nodes and 99 RPC nodes have joined the network every month since June 2021.
But the number of Solana validators is not the only important factor of its decentralization: their geographical distribution needs to be considered as well. Geographically concentrated stake is just as bad as too much stake accumulated in a superminority of validators, and there is a number of reasons, technical as well as political. Too much stake in a single data center is bad because a problem at the data center (such as the famous fire in a French-based Hetzner facility) could take out a large part of the network. Too much stake in any one country bears a risk as well. China has banned Bitcoin mining, and Russia has restricted transactions on its territory. You never know when the next government decides there should not be any validator nodes on their territory. In order to mitigate such an event’s effect on the ecosystem, the validators need to be distributed as evenly as possible across the globe.
Better distribution partially negates the impact of natural cataclysms on the blockchain: events such as floods or storms that can cause major disruptions of Internet coverage in large areas.
The status quo isn’t ideal: the ~2k MainNet validators and ~1.5k RPC nodes are highly concentrated in the US and EU*. There is only one node in South America, and none in Africa, Australia, and the Middle East.
There are limiting factors, such as the rather high entry threshold to host a validator (according to a popular Solana validator, a decent server will set you back approximately $8,000), but Solana still manages to come out on top in terms of decentralization vs. other chains — both Ethereum and the so-called “Ethereum killers”.
Right now, ~30% of Ethereum’s mining power is concentrated within the Ethermine mining pool, and some time ago that pool decided to ban all Tornado Cash-related transactions. This precedent shows that a single company can easily censor 30% of Ethereum transactions, and no one will be able to do anything about it. Mind you, this is not about Tornado Cash and if it should be banned, but only about the lack of decentralization that enables a single player to censor the blockchain like that.
We wrote a detailed thread covering the impact of “The Merge” on Ethereum’s decentralization. TL; DR: it’s not looking great.
As for the future of Solana’s decentralization, it’s not only about the number and geographics of the validator nodes: each of us can contribute. Stake your $SOL, do it through a staking pool or choose a validator far outside of the super minority, and you will make the chain more decentralized and censor-proof.
* Source: Solana Validator Health Report
