Decentralization Ratio
Decentralization ratio is a measure of how decentralized a particular blockchain network is. It helps to indicate the amount of power and control that certain nodes have over the network in comparison to others. The higher the decentralization ratio, the more equal power all participating nodes will have and thus less risk of manipulation or censorship from any one group or individual. This metric can be used as an indicator for assessing trustworthiness when it comes to investing in cryptocurrencies, since higher levels of decentralization often correlate with increased security and immutability on a blockchain network.
The most common way to calculate decentralization ratio involves measuring various aspects such as:
– Number of active users/nodes running each cryptocurrency’s network;
– Distribution and dominance level by dominant miners;
– Distribution by geographical regions where mining takes place;
– Percentage ownership held by large holders/whales;
– Transaction volume per node (active users);
– Hash rate (the computing power) distribution among miners;
– Network fees collected distributed among different participants on-chain or off-chain entities (exchanges).
The data gathered from these metrics can then be used to compare different blockchains against each other in terms of their respective degreee of centralisation or decentralisation. This allows investors, developers and researchers alike gain insight into which networks are more suitable for their needs based on how they wish their funds to be secured, operated upon and managed efficiently without having too much influence from any one party.
