Toward a Multidimensional Conceptualization of Decentralization in Blockchain Governance: Commentary on “Two Sides of the Same Coin? Decentralized versus Proprietary Blockchains and the Performance of Digital Currencies” by Cennamo, Marchesi, and Meyer

Abstract

In this commentary, we argue that studies similar to Cennamo, Marchesi, and Meyer (2020) should distinguish four dimensions of control in blockchain governance, all of which could be more or less decentralized. For some of these dimensions, decentralization is likely beneficial, while for others centralization may be preferable. Cennamo et al. (2020) provide evidence that the initial design stages of blockchain systems benefit from centralization. Future research is needed to provide empirical insights for other dimensions of control in blockchain governance.

Understanding decentralization of decision-making power in proof-of-stake blockchains: an agent-based simulation approach

“…For instance, other potential validator nodes might leave the system and investors might decide to sell their cryptocurrency. While this scenario has been described (Halaburda & Mueller-Bloch, 2020), we are not aware of any research demonstrating this empirically. Overall, our discussion of the three different threats shows that centralisation always poses a threat to blockchain systems, regardless of whether or not the node with a high degree of decision-making power is malicious.…”

“…A node possesses a high degree of decision-making power, thereby creating a vulnerability that can have detrimental effects for the blockchain system (Halaburda & Mueller-Bloch, 2020).…”

“…In this paper, we focus on the (de-)centralisation of decision-making power related to transaction validation. However, other dimensions of decision-making, and therefore centralisation or decentralisation, are also associated with blockchain systems, thereby introducing potential single points of failure (Halaburda & Mueller-Bloch, 2020;Sai et al, 2021). For instance, the initial system development (Beck et al, 2018) and system update development (Azouvi et al, 2018) are often marked by centralisation in practice.…”

“…Despite the intent of achieving decentralisation, consensus mechanisms do not necessarily guarantee decentralisation in practice. In other words, decentralisation is not an inherent feature of blockchain systems, but a desired outcome (Cong et al, 2021;Halaburda & Mueller-Bloch, 2020). The reason decentralisation is desirable is that highly centralised decision-making power in blockchain systems gives rise to a major security threat, the so-called 51% attack.…”

Blockchains

“…Indeed, blockchains differ along a continuum of different decentralization levels, which vary depending on several factors, such as the adopted consensus algorithm and the number of participants in the network (Werbach, 2018). It is also useful to distinguish decentralization across different stages of activities in terms of blockchain adoption, including initial system development, subsequent system updates, transaction validation, and transactions (Halaburda & Mueller-Bloch, 2020).…”