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Is Cardano a decentralized or distributed network?

Published 8.2.2023

The terms decentralized and distributed in the context of blockchain networks often overlap, but they refer to slightly different aspects of the network. However, it is not necessary to understand the exact definition of these terms, but rather the details of the characteristics of blockchain networks. As you will see in the article, the topic has many nuances.

TLDR

  • The term decentralized is focused on control over the network and the absence of a central authority.
  • The term distributed mainly refers to the geographical distribution of nodes to improve efficiency, availability, and reliability.
  • The nodes in blockchain networks are not equal. Some have more decision-making power.
  • Even if the network consensus is distributed over multiple nodes, the network may tend to the centralization of power through control of the resource.
  • It is very difficult to achieve a high degree of decentralization at the project management or source code change level.

Let's look at the definitions

The term "decentralized" originated from the field of political science, economics, and sociology, where it was used to describe systems and organizations that lack a central authority or hierarchy. The concept of decentralization was first used in these fields to describe political systems, such as federalism, where power is distributed among different levels of government.

In the context of computer science and information technology, the term decentralized was later adopted to describe networks, systems, and applications that lack a central point of control or central authority. This concept was applied to the development of peer-to-peer (P2P) networks, where data and resources are shared directly between nodes without the need for intermediaries.

In the blockchain industry, the term "decentralized" is used somewhat imprecisely. The term was originally used exclusively to refer to network architecture, as other aspects of networks were not as important.

The characteristics of a blockchain project are not only related to the network architecture. It is necessary to talk about project management, the team that maintains the source code, governance, but also the distribution of the resource that is used to achieve network consensus.

One definition of a decentralized blockchain network might look like this.

A decentralized network is a network architecture that operates without a central authority or centralized control. Transactions are shared, processed, and verified by multiple nodes in the network. The consensus mechanism used in a decentralized network is designed to be secure and transparent and eliminates the need for intermediaries. The decentralized nature of the network ensures that no single entity has complete control over the network and that the network operates in a democratic and open manner.

Let us now look at the common definition of a distributed network.

A distributed network is a network architecture that is spread across a wide geographic area and uses multiple nodes to process and store data. In a distributed network, computational power and data storage is distributed among many nodes, allowing the network to operate more efficiently and providing increased reliability and availability. The nodes in a distributed network collaborate to validate transactions and perform tasks, and the distribution of computational power helps to ensure the security and integrity of the network. Distributed networks can operate in a decentralized manner, meaning that there is no central authority controlling the network, or they can be centrally controlled, with a central authority directing the activities of the nodes in the network.

Did you notice the difference between the definitions? The term decentralized is more focused on control over the network and the absence of a central authority is the main requirement. Decision-making power must be distributed to multiple independent entities. The term distributed mainly refers to the geographical distribution of nodes to improve efficiency, availability, and reliability. A distributed network can be both centralized and decentralized. The nodes in a distributed network may have varying levels of power and influence. That is, there may be 1000 nodes in the network, thus achieving robustness, but all nodes may be controlled by a single entity.

In our article, we are talking about blockchain networks that are not controlled by a central authority. Let's describe Cardano.

Cardano is a distributed network in which all nodes have the same capabilities and there is no coordination authority.

Could we replace "distributed" with "decentralized" in the sentence above? We could probably do it, but only if we were talking exclusively about network architecture. However, as you will see below, replacing the word will give the sentence a different meaning.

We are all equal, but some of us are more equal

Don't let technical terms muddle your head too much. The blockchain network must be distributed for robustness (reliability, availability) and decentralized in the context of the distribution of the decision-making power. In practice, this means allowing anyone to join (or disconnect) the network at any time and gain the same status as other nodes.

If you think about the last sentence in the context of knowing how the PoS or PoW network consensus works, you will see that something is wrong. If we are talking purely about the capabilities of nodes, then they are the same. However, it is not true that all nodes are equal.

Only some nodes in the network are block producers. In the Cardano network, they are called staking pools. A staking pool is basically a Cardano node that has registered to produce blocks. Anyone who runs their own node can do this. Yet some pools can produce many times more blocks than others. As you can guess, what plays a significant role in the distribution of power in the Cardano network are the ADA coins and the process of delegating them to pools.

The same applies to Bitcoin, where it is not so important to operate a node but to have an ASIC miner that allows you to delegate the hash rate to a chosen Bitcoin pool. How do our definitions and the network consensus relate to each other?

For Cardano, but also for Bitcoin and many other blockchains, it is true that they are composed of many nodes operated by people independently. These blockchain networks are therefore distributed. These blockchains are also decentralized, as there is no single central authority that could be considered a single point of failure. However, it is not the case that they are all equal. It is more accurate to say that there is a group composed of multiple independent entities that have more decision-making power than others. Let's say more decision-making power than the average node operator.

If someone owns a large number of ADA coins (or a large shed full of ASIC miners), they don't need to run their own node and still have a stronger position in the network at the block production level than someone who just runs their own node (and maybe has a small amount of ADA coins they delegated to the staking pool).

Network consensus happens in the network between nodes. Obviously, this relates to network architecture. However, it is possible to gain a significant amount of control over the network, not by an individual running multiple nodes, but by owning the resource that is used to achieve network consensus. It is even possible to hold a large share of power without having to run your own node.

In the case of Cardano, it is more accurate to describe it as a distributed network in which certain nodes have more power and influence than others, rather than a decentralized network in which all nodes have equal power and responsibility. To achieve network consensus, cooperation among nodes is required, which can be considered a distributed task.

It is important to know that even if the network consensus is distributed over multiple nodes, the network may tend to the centralization of power through control of the resource (coins or hash rate). Centralization can occur when several individuals (or a single individual) control a significant portion of a resource, or most people delegate a resource to a single node/pool.

Remember that network decentralization does not automatically grow with the number of nodes. The network will only become more distributed. From a decentralization perspective, the distribution of the resource used for consensus, i.e., coins or hash rate, matters more.

A network may have 10,000 nodes, but if 20 entities own or dispose (through delegation) of more than 50% of the resource, the network is vulnerable through those 20 entities. We can say in this case that despite the high distribution of nodes, the decentralization of the network would be low.

The definition of distributed and decentralized networks is also valid in the context of network consensus, as we are still at the network architecture level. It may come as a surprise to some that all nodes are not equal, but it does not violate the definitions. However, they cease to apply once we start talking about other aspects of blockchain networks.

Project management is about people, not network architecture

Once we look beyond network architecture, we find that projects are more or less centralized. It is very difficult to achieve a high degree of decentralization at the project management or source code change level. Many projects strive for this. For some, it is even possible to vote on changes to the source code.

It is important to know where exactly the line is between programmers and network consensus. Individual programmers and teams have no influence on network consensus unless they have a significant share of the resource used to reach consensus.

In the Cardano network, independent staking pool operators produce blocks and are significantly supported by delegators who delegate ADA coins to their pools. The team has no control over this process. Anyone in the world can start operating their own Cardano node and register as a block producer. If he has enough ADA coins or gets enough delegations, he can produce blocks and no one can stop him.

The IOG team currently has control over the project treasury or changing network parameters. It can also modify the source code. This is set to change in the Voltaire era, so Cardano will be more decentralized at the project management level as well.

If we are talking about project management and some form of voting through ADA coins, it makes sense to talk about decentralization, but also about the distribution of power. However, this has nothing to do with the network architecture.

Conclusion

Most people will probably continue to use the term decentralized blockchain regardless of context. Ideally, the blockchain should be as decentralized as possible, and at all levels. From a network architecture perspective, it is cool to use the term distributed, as this characteristic refers to reliability and availability. If someone were to attack the blockchain, they would not attack individual nodes of ordinary users, but places important to the network consensus. Which ones are they? Pools and delegators. These are single/multiple points of failure. These entities collectively control the network, so it makes sense to talk about decentralization. The more pools and delegators there are, the more decentralized the network will be and therefore the harder it will be to attack.

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