The Edinburgh Decentralization Index

The Edinburgh Decentralization Index (EDI) is an index developed by the University of Edinburgh to measure the level of decentralization of cryptocurrencies such as Bitcoin and Ethereum.

From this index, it is possible to have a practical and objective measurement of how decentralized a project is.

For example, imagine there are 100 agents responsible for creating blocks in a cryptocurrency. Some of these agents manage to create blocks more frequently. Consider that the top 5 agents that create the most blocks are responsible for creating 30% of all blocks in the network. Looking at the top 50 agents, they are responsible for creating 60% of the blocks.

In another cryptocurrency, the top 5 agents create 20% of the blocks and the top 50 agents create 90% of the blocks.

Which of these two mentioned cryptocurrencies is more decentralized at the consensus level?

This is a difficult question, and it seems subjective. Trying to rank different projects from a decentralization index requires in-depth study.

This is exactly why the University of Edinburgh decided to create the EDI. EDI seeks to analyze the parameters of a network in an impartial and technical way, to bring more objectivity to this ecosystem.

External criticism of the concept of decentralization

There is a lot of criticism regarding the real decentralization of the web3. Some governments and institutions have already released studies suggesting that there is little real decentralization in the most popular cryptocurrencies.

However, while there is much discussion on this topic, there is no objective measurement that has become standard among the community.

One of the key differentiators of Bitcoin has always been the concept of decentralization, the innovative possibility of achieving consensus in a system without needing a centralizing agent.

Bitcoin’s original paper brings a solution involving the Proof of Work (PoW) protocol. Subsequently, other protocols have emerged, such as the Proof of Stake (PoS). But the question about decentralization remains the same.

After all, what is real decentralization? What level can be considered acceptable? What aspects need to be considered?

The motivation for EDI

If the cryptocurrency ecosystem recognizes a decentralization index as relevant, this can accelerate adoption, simply by making this concept more transparent and tangible.

When creating laws and definitions about cryptocurrencies, governments can rely on this index instead of interpreting abstract definitions subjectively. When evaluating the robustness of a project, users, companies, and investors can rely on this index as well.

Overall, the benefits of a technically coherent decentralization index are numerous.

Understanding how the Edinburgh Decentralization Index is created

Many technical attributes need to be taken into consideration, from the creation of network transactions to the validation of full nodes.

In addition, it is possible to define a project in terms of decentralization at the consensus level, at the concentration of currencies level, at the daily usage level, among others.

The exact calculation of EDI has not yet been disclosed.

According to Charles Hoskinson, initially the index will measure the decentralization of Bitcoin, then Ethereum, then Cardano, and then on to the other cryptocurrencies.

Charles Hoskinson points out that he doesn’t know what value Cardano will get. You can check it out in this excerpt from the video below:

EDI Methodology – In a Nutshel

In order to identify the different aspects of centralization of a cryptocurrency, the EDI methodology consists of analyzing different layers, as shown in the figure below.

Each layer has its importance. For example, centralization at the consensus level brings the risk of attack to the validation of transactions. Centralization at the tokenomics level brings the risk of price manipulation. Centralization at the Network level brings the risk of failure or censorship via infrastructure, and so on.

In all these layers it is important to understand decentralization not only in relation to the number of agents involved, but also their geographical distribution and governance participation.

Obviously, each layer can also be divided into many subcategories.

For each blockchain layer (and each subcategory), the EDI will:

Identify centralization hazards against relevant blockchain properties.
Measure the distribution of each layer’s resource across the relevant parties.

Combine all measurements into a single index:

Quantitative: a specific “centralization” value is assigned to each analyzed blockchain project.
Qualitative: each analyzed project gets “badges” for fulfilling well-defined requirements.

Current Roadmap:

The current status of the project is as follows:

Produce the research methodology for evaluating blockchain decentralization.
Develop the framework to measuring decentralization.
Conceptualize the core metric modules.
Gather data of real-world ledgers and apply the framework to them.
Release the Edinburgh decentralization index (EDI).
Make the framework’s modules open source and allow external contributions.
Visual interface that depicts the decentralization index of real world ledgers.

As soon as papers are published and the official index is released, we will update here on this page, so stay tuned and bookmark the page.