Navigating the Centralisation Storm in Cryptocurrency

Pi Network's promise of democratising cryptocurrency mining through a user-friendly mobile app originally captured a significant share of imagination and interest.

A quiet storm is gathering over Pi Network, the cryptocurrency project that promised to bring crypto mining to everyone’s fingertips.

While it set out to offer a user-friendly way to engage with digital currencies, a staggering 82.8 billion coins controlled by the core team and a thinly spread validator network have raised alarm bells over centralisation, contrasting sharply with the core tenets of decentralisation that form the bedrock of cryptocurrencies like Bitcoin and Ethereum.

As users continue to mine Pi Coins and the network’s market cap stands at $12.26 billion, according to CoinGecko, the project faces an uphill battle to address these issues and maintain the trust of its community.

Here’s a closer look at the controversies surrounding Pi Network, its market dynamics, and actionable recommendations for potential users.

What is Pi Network?

Founded in 2019 by three Stanford University researchers—Prof. Michel O'Rall III, Dr. Jianpeng Ma and Dr. Wei Dai—Pi Network aims to develop a new cryptocurrency token that can be mined by members of the public through a mobile phone application.

The project claims to offer a more energy-efficient and accessible model for engaging with cryptocurrencies compared to existing models such as Bitcoin, which relies on a Proof-of-Work consensus mechanism that can be taxing on computing power and energy. Instead, Pi Network says it uses a Stellar Consensus Protocol, which is said to be more lightweight and can be performed on mobile devices without consuming large amounts of energy.

To begin mining Pi Coins, users are required to complete a short Know Your Customer (KYC) procedure and provide personal details such as their full name, email address and phone number. Once KYC is complete, users can start mining by pressing a button on the application every 24 hours.

The project also features a referral program that allows users to earn more coins by inviting friends and family to join the network.

The project’s website explains that the core team will continue to develop and maintain the open-source codebase for the Pi Network, while community members can contribute to the project’s development by building on the existing code or suggesting new features.

The project’s whitepaper can be accessed here.

What are the controversies surrounding Pi Network?

Centralisation Concerns

According to on-chain data from BlockChainCenter, the Pi Network core team controls a substantial portion of the currency, with 82.8 billion coins concentrated within six wallets. This contrasts with Bitcoin, which is distributed among thousands of independent validators and exchanges, rendering it largely decentralised.

A snapshot of the Pi Network coins and their distribution as of 17 October can be seen below:

Image Credit: BlockChainCenter

This level of centralisation runs contrary to the fundamental decentralised ethos driving most cryptocurrencies, especially considering that the project claims to be offering an alternative to Bitcoin due to its alleged centralisation.

Centralisation can pose several risks, such as enabling control over the network and potential for price manipulation.

In a decentralised cryptocurrency, no single entity or group has overarching control over the network or its operations. This is usually achieved through a distributed ledger technology (DLT), such as a blockchain, where transactions are recorded and visible to all participants.

In contrast, a centralised cryptocurrency is typically controlled by a core team or a small group of developers who have the authority to make changes to the network and can potentially influence its direction.

The implications of centralisation can be far-reaching and are usually discussed in terms of advantages and disadvantages.

For instance, centralisation can lead to faster decision-making and coordination, which might be beneficial for a project's efficiency, especially during the early stages of development. However, it can also create bottlenecks and limit flexibility in response to changing market conditions or user feedback.

Furthermore, centralisation can pose risks of corruption or abuse if a core team misuses their privileges or makes opaque decisions that favour their interests over the community's.

In a decentralised cryptocurrency, the community plays a vital role in overseeing the network and holding it accountable. This can be done through open-source code contributions, participating in proposals for upgrading the network and engaging in open discussions on forums and social media.

In essence, a decentralised cryptocurrency is designed to be community-owned and operated, aiming to foster transparency, fairness and collective decision-making in the cryptocurrency ecosystem.

Limited Validator Nodes

According to Web3 Foundation data, Pi Network currently has only three active validator nodes, all of which are based in the U.S., and they are thinly spread geographically. In contrast, Bitcoin has more than 7,000 validator nodes, while Ethereum has around 2,000 validator nodes. These nodes are distributed globally, ensuring greater security and redundancy.

A snapshot of the Pi Network validator nodes can be seen below:

Image Credit: Web3 Foundation

This scarcity of validator nodes on Pi Network could pose challenges in terms of