Nakamoto Coefficient — how decentralized is your blockchain
About the Nakamoto Coefficient
With this article, we are publishing data on the prevailing metric measuring Decentralization of Blockchain Consensus, taking into account open source node validation published by Nakaflow. The following presentation is a summary measuring a relative decentralization of blockchain node validation, similar to Herfindahl–Hirschman Index, a commonly accepted metric of market concentration. By using on-chain data, Cryptoken Board UÜ the following charts will include (11) Proof of Stake blockchain networks.
First proposed by Balaji Srinavasan and Leland Lee and named in honor of Satoshi Nakamoto, the pseudonymous creator of Bitcoin, the Nakamoto Consensus. On a typical Proof of Stake network the Nakamoto Coefficient is defined by the number of node operators that, together, control more than one third (33.33%) of all stake on the network. In this article , we are also going to also publish data on Token Supply, and Token Emissions, and ‘Soft’ vs ‘Hard’ Capitalization to give our readers and crypto community at large a better idea on how many tokens under study are currently emitted in circulation, versus a maximum amount of tokens for reach blockchain.
NC Metric
We are publishing a report that includes Nakamoto Coefficient metric for the Proof of Stake blockchains. This data enables us to peak into a level of concentration (decentralization) by measuring how many node entities account for +33% of market consensus, indicating how much hash power is controlled by at least two node validators. Chart 1 includes (11) leading blockchain Proof-of-Stake networks, and their relative comparison.
According to data published by Nakaflow, as of October 5th, 2023 — Solana, Thorchain and Avalanche are three networks with a highest degree of decentralization when it comes to Nakamoto Coefficient. $SOL (29), $RUNE (29) and $AVAX (24) have a highest degree of nodes diversified across different blockchain miners, albeit this is PoS metric. The least diversified blockchains according to our data are Qtum blockchain, Ethereum blockchain, and Polygon Token. $QTUM (2), $ETH (2) and $MATIC (4) are least decentralized whereby only a few nodes or nodes controlled by unified entities are hashing 33% + of the blockchain consensus. NEAR blockchain, Hedera blockchain, Binance blockchain and Cosmos fall in the medium category whereby +8 entities account for +33% of the network consensus.
Token Emission Ranking
Also, we wanted to include data token emission data on the Proof of Stake blockchains under coverage , comparing their token emission standard and their outstanding supply against each other as “comparables’ or “comps”. Another interesting fact, that also relates to how blockchain entities having control over block validations is their ability to “unlock” more tokens and directly including token-economcs and its future supply. We’re reporting a metric here called two indicators one called “CAP” that stands to capped supply, and also “UNL” meaning that a particular blockchain can technically emit more tokens, beyond its reported amount and doesn’t have ceiling on the possible (future) token emission.
If we look closely at Chart 2 — we can see that (4) blockchains have already minted near 100% of the token supply including Cosmos, Avalanche, Binance, and Ethereum, while Near blockchain and Qtum blockchain have accounted for +98% of the emission. (NOTE: AVAX token emission has another capitalization limit for their tokens, suggesting that the current supply only accounts for about 60% of the maximum limit). The other (3) blockchains included in our study are Sui (86%) Solana (74%), Hbar Blockchain (67%) and Thorchain (67%) of total token emission as of October 5th 2023.
What we need to highlight here is that from the following list, hard token cap (emission) which is reported on the y-axes as “CAP” of Chart 2. The following blockchains Qtum, Sui, Thorchain, Polygon, Hbar are already reporting their maximum emission of the token supply (hard capitalization), while the other blockchain including Solana, Near, Ethereum, Binance and Cosmos technically can emit more tokens over the current maximum token supply (soft capitalization).
In conclusion, according to the data published by Nakaflow, and our own reported Token Emission standard, we are seeing mixed results. Blockchains with the highest Nakamoto Coefficient, tend to have low token emission as percentage of token supply, while the other blockchains with hard capitalization rates of token supply tend to have low NC metric. The goal of Cryptoken Board UÜ reporting is to help community better understand fundamental topics governing blockchain sector, and shed more light on topics relating to blockchain node concentration and token emission standards. Feel free to drop a comment below, and please let us know about your thoughts and feedback, regarding diversification of node validation for the leading Proof-of-Stake blockchains.
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