The Edinburgh Decentralization Index: A New Beacon of Transparency in the Crypto Universe
With the rise of cryptocurrencies and blockchain technologies, questions around decentralization have continued to perplex crypto enthusiasts, investors, and regulators alike. Enter the Edinburgh Decentralization Index (EDI), a newly developed tool that aims to bring more clarity and objectivity to the assessment of decentralization.
The EDI, birthed in the prestigious halls of the University of Edinburgh, presents an impartial, technical method to measure the degree of decentralization in projects such as Bitcoin, Ethereum, and others. It offers a practical, data-driven solution to what can often be a subjective evaluation.
Picture a cryptocurrency where 100 agents are responsible for creating blocks. Some agents create blocks more frequently. For instance, the top 5 agents create 30% of all blocks, and the top 50 create 60% of all blocks. Compare this with another cryptocurrency where the top 5 create 20% and the top 50 create 90% of the blocks. How does one objectively determine which one is more decentralized at the consensus level? The EDI is designed to tackle precisely these kinds of questions.
The EDI is a response to persistent criticisms of purported decentralization in web3 technologies. While a great deal of debate rages on about the level of real decentralization in popular cryptocurrencies, there is yet to be a universally accepted measure. The EDI hopes to fill this vacuum.
The concept of decentralization is a cornerstone of cryptocurrencies. Bitcoin's original paper proposed a solution involving the Proof of Work (PoW) protocol, and later technologies brought forth alternatives like the Proof of Stake (PoS) protocol. However, the question of what constitutes real decentralization has remained. The EDI will provide a robust, technically consistent measure that can guide governments, users, companies, and investors.
The EDI assesses multiple technical attributes, ranging from the creation of network transactions to the validation of full nodes. It can evaluate a project in terms of decentralization at various levels, including the consensus level, the concentration of currencies level, the daily usage level, and more. The exact methodology behind the EDI's calculations is still under wraps, but it promises to deliver an unbiased assessment of the decentralization status of various cryptocurrencies.
Interestingly, the EDI methodology involves an analysis of different layers of a cryptocurrency, each of which carries its unique implications. For instance, centralization at the consensus level presents a risk to the validation of transactions. Centralization at the tokenomics level exposes the project to the risk of price manipulation. Centralization at the network level exposes the project to the risk of failure or censorship via infrastructure, and so forth.
The EDI project is still evolving, but its roadmap is impressive. It includes the production of a research methodology, development of a framework to measure decentralization, gathering data from real-world ledgers, and ultimately, releasing the EDI. Once complete, the EDI promises to be a game-changer in the crypto universe, providing unprecedented transparency to the fundamental tenet of decentralization.
Input Output Global (IOG), the creators of the Cardano blockchain platform, has partnered with the School of Informatics on several projects. They are funding the ZK-Lab, supporting the launch of the blockchain industry's first 'decentralization index,' and lastly, investing $4.5M to create a blockchain research hub in Edinburgh.
Together with the launch of the ZK-Lab and the EDI, a $4.5 million donation to the University of Edinburgh will establish.