Bitcoin

Decentralization                                                                                           

Bitcoin is decentralized thus:

 

• Bitcoin does not have a central authority.
• The bitcoin network is peer-to-peer, without central servers.
• The network also has no central storage; the bitcoin ledger is distributed.
• The ledger is public; anybody can store it on a computer.
• There is no single administrator; the ledger is maintained by a network of equally privileged miners.
• Anyone can become a miner.
• The additions to the ledger are maintained through competition. Until a new block is added to the ledger, it is not known which miner will create the block.
• The issuance of bitcoins is decentralized. They are issued as a reward for the creation of a new block.
• Anybody can create a new bitcoin address (a bitcoin counterpart of a bank account) without needing any approval.
• Anybody can send a transaction to the network without needing any approval; the network merely confirms that the transaction is legitimate.

 

Conversely, researchers have pointed out at a "trend towards centralization". Although bitcoin can be sent directly from user to user, in practice intermediaries are widely used. Bitcoin miners join large mining pools to minimize the variance of their income. Because transactions on the network are confirmed by miners, decentralization of the network requires that no single miner or mining pool obtains 51% of the hashing power, which would allow them to double-spend coins, prevent certain transactions from being verified and prevent other miners from earning income. As of 2013 just six mining pools controlled 75% of overall bitcoin hashing power. In 2014 mining pool Ghash.io obtained 51% hashing power which raised significant controversies about the safety of the network. The pool has voluntarily capped their hashing power at 39.99% and requested other pools to act responsibly for the benefit of the whole network. Around the year 2017, over 70% of the hashing power and 90% of transactions were operating from China.

According to researchers, other parts of the ecosystem are also "controlled by a small set of entities", notably the maintenance of the client software, online wallets and simplified payment verification (SPV) clients.

Privacy and fungibility                                                                            

Bitcoin is pseudonymous, meaning that funds are not tied to real-world entities but rather bitcoin addresses. Owners of bitcoin addresses are not explicitly identified, but all transactions on the blockchain are public. In addition, transactions can be linked to individuals and companies through "idioms of use" (e.g., transactions that spend coins from multiple inputs indicate that the inputs may have a common owner) and corroborating public transaction data with known information on owners of certain addresses. Additionally, bitcoin exchanges, where bitcoins are traded for traditional currencies, may be required by law to collect personal information. To heighten financial privacy, a new bitcoin address can be generated for each transaction.

Wallets and similar software technically handle all bitcoins as equivalent, establishing the basic level of fungibility. Researchers have pointed out that the history of each bitcoin is registered and publicly available in the blockchain ledger, and that some users may refuse to accept bitcoins coming from controversial transactions, which would harm bitcoin's fungibility. For example, in 2012, Mt. Gox froze accounts of users who deposited bitcoins that were known to have just been stolen.