Keyword

Big Firms Dominate Post-Merge Ethereum Validation

Many of the benefits promised by the Ethereum merge have come to pass, including a greater-than-99% reduction in energy use and its carbon footprint. But analysts who had raised the alarm over increased centralization before the transition remain concerned that relatively few entities dominate the proof-of-stake mechanism now underlying the blockchain.

“[The] top 7 entities controlling >2/3 of the stake is pretty disappointing to see tbh,” tweeted Martin Köppelmann, cofounder of DeFi platform Gnosis.

He posted a chart showing Ethereum staking service Lido handling more than 27 percent of stake based Ethereum validation, followed by crypto exchange Coinbase with more than 14 percent.

A recent Dune Analytics report affirmed that the two largest stakers of Ethereum are currently Lido with 4.16 million ETH (30.1%) and Coinbase with 2 million ETH (14.5%). The remaining stakers, classified as “other,” have 3.65 million ETH (26.5%).

Decentralization is a key objective of crypto and Web3. The fact that Bitcoin is “sufficiently decentralized” is the main reason why it has remained outside of the crosshairs of U.S. regulators.

If participation in Ethereum validation becomes too centralized, security experts note, the possibility of a “51 percent attack” becomes more than theoretical. Further, dominant parties could be pressured to censor transactions on the blockchain although Coinbase CEO Brian Armstrong has said that such a scenario would prompt his company to get out of the staking business.

Unlike proof-of-work, which requires a considerable amount of hardware and energy to profitably mine and maintain a blockchain network, proof-of-stake depends more on users buying, holding, and staking large amounts of the network’s cryptocurrency. Some critics have described the merge as a move toward centralization.

Now that Ethereum is based on proof of stake, validators with at least 32 ETH can stake or pledge to the network, instead of relying on miners. Smaller groups can create staking pools to combine their ETH to become validators or join an exchange that offers staking.

“You should not stake with an exchange,” warned Ethereum core developer Micah Zoltu in a recent interview with Decrypt. “It hurts the network rather than helping, and the return on investment at the moment probably isn’t worth it.”

Zoltu recommends users stake their ETH running their own Ethereum node, which Ethereum holders can do on a personal computer. “It is doable by anyone with a sufficiently good computer, electricity, and internet,” he said.

Meanwhile, Köppelmann pointed out that top crypto Bitcoin also has a centralization problem.

“No, dear Bitcoin fans, it is not better in Bitcoin,” he tweeted. “In fact you need only 4 entities to come to >72%.”

Source: decrypt.co

>> Related: Ethereum Fork ETHPoW Gets Off to Rocky Start

Follow: