Nakamoto Coefficient

A metric quantifying blockchain decentralization by identifying the minimum number of independent entities needed to compromise network consensus, typically 33% of stake in proof-of-stake systems or 51% of hash power in proof-of-work.

What is Nakamoto Coefficient?

The Nakamoto Coefficient, introduced in the 2017 paper “Quantifying Decentralization” by Balaji S. Srinivasan and Leland Lee, measures a blockchain’s resilience to collusion by calculating the smallest set of entities—such as validators, miners, or node operators—that could collectively control enough resources to halt operations or censor transactions. For proof-of-stake (PoS) networks like Solana, it targets the number of validators holding at least 33% of staked digital assets, reflecting Byzantine fault tolerance thresholds; for proof-of-work (PoW) like Bitcoin, it focuses on 51% of hash power via mining pools. A higher coefficient signals stronger decentralization, reducing risks of 51% attacks or governance capture, while values below 5 indicate vulnerability, as seen in early critiques of Ethereum’s staking concentration.

As of September 2025, Bitcoin’s Nakamoto Coefficient stands at 3 for mining pools (e.g., Foundry USA, AntPool, and ViaBTC controlling over 51% hash rate), highlighting centralization risks despite ~17,000 nodes yielding a node-based coefficient of ~8,500. Ethereum’s is 4, with Lido, Coinbase, Kraken, and Binance nearing 51% of staked ETH. Solana’s has improved to 20 validators for 33% stake (up from 18 in early 2025), per Rated.Network data, surpassing Ethereum but trailing leaders like Polkadot (50+) and Avalanche (24). These figures, tracked by tools like Nakaflow and Chainspect, underscore dynamic shifts—Solana’s peaked at 34 in 2023 amid validator growth to over 1,400—yet critics note limitations, such as ignoring geographic clustering (e.g., Solana’s early reliance on 2-3 data centers) or client software dominance, where Bitcoin Core holds ~99% market share, potentially dropping effective coefficients to 1-3.

While the coefficient provides a snapshot for comparing ecosystems—e.g., Cardano at 50 for robust stake distribution—it evolves with network upgrades, like Solana’s Firedancer client enhancing validator diversity. Investors use it to assess asset security, with low scores correlating to higher volatility during outages, as in Solana’s 2022 disruptions tied to concentrated stake. Developers optimize for higher values via incentives, ensuring blockchains like these maintain trust in digital asset protocols.