[Paper Review] Comparison of Decentralization in DPoS and PoW Blockchains

Chao Li, Balaji Palanisamy|arXiv (Cornell University)|Feb 6, 2020

Blockchain Technology Applications and Security11 references4 citations

TL;DR

This paper compares decentralization in Bitcoin (PoW) and Steem (DPoS) using Shannon entropy to quantify distribution of computational power and stake. It finds that while Bitcoin is more decentralized among top miners, Steem exhibits greater overall decentralization, indicating neither system is clearly superior in decentralization across all metrics.

ABSTRACT

Decentralization is a key indicator for the evaluation of public blockchains. In the past, there have been very few studies on measuring and comparing the actual level of decentralization between Proof-of-Work (PoW) blockchains and blockchains with other consensus protocols. This paper presents a new comparison study of the level of decentralization in Bitcoin and Steem, a prominent Delegated-Proof-of-Stake (DPoS) blockchain. Our study particularly focuses on analysing the power that decides the creators of blocks in the blockchain. In Bitcoin, miners with higher computational power generate more blocks. In contrast, blocks in Steem are equally generated by witnesses while witnesses are periodically elected by stakeholders with different voting power weighted by invested stake. We analyze the process of stake-weighted election of witnesses in DPoS and measure the actual stake invested by each stakeholder in Steem. We then compute the Shannon entropy of the distribution of computational power among miners in Bitcoin and the distribution of invested stake among stakeholders in Steem. Our analyses reveal that neither Bitcoin nor Steem is dominantly better than the other with respect to decentralization. Compared with Steem, Bitcoin tends to be more decentralized among top miners but less decentralized in general. Our study is designed to provide insights into the current state of the degree of decentralization in DPoS and PoW blockchains. We believe that the methodologies and findings in this paper can facilitate future studies of decentralization in other blockchain systems employing different consensus protocols.

Motivation & Objective

• To evaluate and compare the actual level of decentralization between Proof-of-Work (PoW) and Delegated Proof-of-Stake (DPoS) blockchains.
• To address the lack of comparative studies on decentralization between PoW and DPoS consensus mechanisms.
• To measure stake distribution among stakeholders in Steem, not just witness distribution, to reflect true decentralization in DPoS systems.
• To apply Shannon entropy as a quantitative metric for comparing decentralization across different blockchain architectures.
• To provide methodological insights and empirical findings to guide future research on decentralization in emerging blockchain protocols.

Proposed method

• The study computes the Shannon entropy of the distribution of computational power among miners in Bitcoin using data from BTC.com API.
• It measures the actual stake invested by each stakeholder in Steem using data from the Steem blockchain and interactive API.
• The stake-weighted election process in Steem’s DPoS mechanism is analyzed to understand how voting power translates into witness selection.
• Shannon entropy is applied to both distributions—computational power in Bitcoin and stake in Steem—to quantify decentralization levels.
• The analysis compares entropy values across different ranks (e.g., top 10%, top 50%) to assess decentralization at varying levels of aggregation.
• The methodology enables a direct, quantitative comparison of decentralization between PoW and DPoS blockchains based on real-world stake and power distributions.

Experimental results

Research questions

• RQ1 How does the decentralization level of Bitcoin (PoW) compare to Steem (DPoS) when measured by the distribution of computational power and stake?
• RQ2 To what extent does the stake-weighted election mechanism in DPoS blockchains like Steem affect the actual decentralization of the system?
• RQ3 Is the commonly assumed centralization in DPoS blockchains fully supported by empirical data on stake distribution?
• RQ4 How does the choice of aggregation level (e.g., top 10% vs. top 50%) influence the perceived decentralization of PoW and DPoS systems?
• RQ5 Can Shannon entropy serve as a reliable and comparable metric for quantifying decentralization across different consensus protocols?

Key findings

• Bitcoin exhibits higher Shannon entropy among the top miners, indicating greater decentralization at the level of dominant mining power.
• When considering all miners, the overall entropy of Bitcoin’s computational power distribution is lower than that of Steem’s stake distribution, indicating Steem is more decentralized in the broader population.
• Steem’s stake distribution shows higher entropy across the full stakeholder base, suggesting a more evenly distributed control mechanism compared to Bitcoin’s mining pool concentration.
• The study reveals that neither Bitcoin nor Steem is clearly superior in decentralization across all metrics—Bitcoin leads among top actors, while Steem leads in overall distribution.
• The findings challenge the assumption that DPoS is inherently less decentralized than PoW, showing that stake-based governance can achieve high decentralization when widely distributed.
• The proposed methodology using Shannon entropy on real stake and power distributions provides a robust, comparable framework for evaluating decentralization in diverse blockchain systems.