Nakamoto Coefficient: Measuring Blockchain Decentralization and Assessing Security Risks for Bitcoin, Ethereum, and Other Major Chains

The Nakamoto Coefficient is a recognized metric for evaluating blockchain decentralization, introduced by Balaji Srinivasan and Leland Li in 2017. It measures the minimum number of entities—such as mining pools, validators, or organizations—needed to control or compromise critical subsystems of a blockchain. The coefficient is determined by analyzing the distribution of hash rate (for Proof-of-Work chains) or staked assets (for Proof-of-Stake networks), identifying how many top participants cumulatively control at least 51% of the network. A higher Nakamoto Coefficient reflects a more decentralized and secure network, less vulnerable to 51% attacks or collusion, while a lower coefficient signals increased centralization risks. As of May 2025, Bitcoin has a coefficient of 3, indicating three mining pools control over half the hash rate, highlighting moderate centralization. Ethereum’s coefficient is 5, with its top five staking entities surpassing the 51% threshold. Notably, Proof-of-Stake chains vary greatly: Polygon scores 4, suggesting higher centralization, while Polkadot achieves 173, signaling strong decentralization. The Nakamoto Coefficient is widely used by traders and investors to assess blockchain security and monitor changes in network structure. However, it is a static measure, may omit off-chain relationships or token concentration, and requires adaptation for different consensus mechanisms. Overall, keeping an eye on changes in this metric helps traders gauge network reliability and inform trading and investment decisions.