What Is the Nakamoto Coefficient?
The Nakamoto Coefficient is a powerful and increasingly relevant metric that measures the degree of decentralization in a blockchain network. Introduced in 2017 by Balaji Srinivasan (former CTO of Coinbase) and Leland Lee, this concept aims to provide a quantitative benchmark for how resilient a blockchain is against collusion or centralized control.
In simple terms, the Nakamoto Coefficient reflects the minimum number of entities—such as miners, validators, or exchanges—needed to disrupt or control a decentralized network. The smaller the number, the more centralized the network is, and vice versa.
How Is the Nakamoto Coefficient Calculated?
To calculate this coefficient, one must analyze various subsystems of the blockchain, including:
- Mining or validation power
- Client software diversity
- Developer contributions
- Token ownership
- Node distribution
- Exchange concentration
For each subsystem, analysts determine how many participants it would take to gain 51% control—a critical threshold for potential attacks. The lowest value among all subsystems becomes the final Nakamoto Coefficient for that blockchain.
For example, if three mining pools in Bitcoin control more than 51% of the total hash rate, then Bitcoin’s Nakamoto Coefficient is 3.
Case Study: Bitcoin and Ethereum
Bitcoin, despite its widespread use and large node network, had a Nakamoto Coefficient of 3 as of May 2025. Just three mining pools—Foundry USA, AntPool, and ViaBTC—controlled over 63% of the network’s hash rate.
Ethereum, using a Proof-of-Stake (PoS) consensus mechanism, showed a slightly better coefficient of 5. Major validators like Lido, Coinbase, Binance, Ether.fi, and Kiln combined to cross the 51% threshold.
These values highlight that even the most trusted blockchains can have centralization vulnerabilities lurking beneath the surface.
Practical Applications in Other Networks
The Nakamoto Coefficient isn’t just for Bitcoin or Ethereum. Networks like Polygon show a coefficient as low as 4, raising concerns, while Polkadot boasts a staggering 173, showcasing one of the highest levels of decentralization among PoS chains.
Projects like Internet Computer have even modified the calculation method, suggesting the use of weighted logarithmic averages across subsystems to better capture shifts in decentralization over time.
Key Limitations of the Nakamoto Coefficient
While the Nakamoto Coefficient is an insightful tool, it’s far from perfect. Among its major limitations:
- Static Snapshot: It represents the network at a single moment, quickly becoming outdated.
- Surface-Level Analysis: It doesn’t account for ownership overlap across validators or geographic distribution.
- One-Dimensional: Focuses primarily on the number of entities, ignoring their influence or infrastructure capabilities.
- Consensus Mechanism Variability: The calculation method may need to be adjusted for different blockchain architectures.
- Off-Chain Factors: Regulatory pressure or economic shifts aren’t captured, though they can drastically affect decentralization.
Conclusion
The Nakamoto Coefficient is an essential tool for anyone looking to understand the true decentralization of a blockchain network. While not without its flaws, it provides a clear, quantifiable measure of how vulnerable a network might be to control or manipulation. As the blockchain ecosystem evolves, refining this metric will be critical to building trustworthy, resilient, and decentralized systems for the future.
