Field Note #8. On "Impossibility of Decentralization"

Source: Yujin Kwon et. al., Impossibility of Full Decentralization in Permissionless Blockchains, Advances in Financial Technologies (Oct. 2019)

• There are two required conditions for full decentralization: (1) sufficient number of independent consensus participants in the system and (2) equal resource power distribution among them.
• We can tag these conditions as (1) the "numerosity condition" and (2) the "resource distribution" condition.
• For there to be equal resource distribution, there must be Sybil costs, which exists when it becomes more costly for a party to run multiple nodes on a blockchain vs. a single node.  
• Absence of Sybil costs removes a cost deterrent in the system, allowing for resources to be gathered by fewer parties with pre-existing means to aggregate resources.
• The only way to ensure Sybil cost in a permissionless system is ironically through a trusted third party that can verify real world identities (not simply wallet addresses, as multiple unique addresses may be controlled by a single entity), making full decentralization a practical impossibility.