CYPHERPUNK

About the Nakamoto Coefficient

First proposed by Balaji Srinavasan and Leland Lee and named in honor of Satoshi Nakamoto, the pseudonymous creator of Bitcoin, the Nakamoto Coefficient is a measure of the smallest number of independent entities that can act collectively to shut down a blockchain. On a typical Proof-of-Stake network (like those listed here on Nakaflow), the Nakamoto Coefficient is defined by the number of node operators that, together, control more than one third (33.33%) of all stake on the network.

What does that mean for the data here? If, for example, the current Nakamoto Coefficient for a given network is listed here as "10", then there are 10 node operators (often called "validators") who, together, control more than one third of stake on that network. With that much stake, these 10 node operators would have the option to join forces as bad actors and prevent the network from reaching consensus, thus halting the chain from adding new blocks and effectively shutting down the network.

The Nakamoto Coefficient sheds light on blockchain security by highlighting the vulnerability posed by a small group of validators. Understanding this measure is crucial for assessing the decentralization and robustness of a blockchain network.