SoK: Blockchain Decentralization

Blockchain empowers a decentralized economy by enabling distributed trust in a peer-to-peer network. However, surprisingly, a widely accepted definition or measurement of decentralization is still lacking. We explore a systematization of knowledge (SoK) on blockchain decentralization by comprehensively analyzing existing studies in various aspects. First, we establish a taxonomy for analyzing blockchain decentralization in the five facets of consensus, network, governance, wealth, and transaction bu qualitative analysis of existing research. We find relatively little research on aspects other than consensus decentralization. Second, we propose an index that measures and quantifies the decentralization level of blockchain across different facets by transforming Shannon entropy. We verify the explainability of the index via comparative static simulations. We also provide the definition and discussion of alternative indices including the Gini Coefficient, Nakamoto Coefficient, and Herfindahl-Hirschman Index (HHI). We provide open-source Python code for calculating the decentralization index comparing various alternatives on GitHub. Third, by applying our proposed index to empirical research on Top DeFi applications, we demonstrate how the three scientific methods of descriptive, predictive, and causal inferences are useful in studying blockchain decentralization.