Many of the benefits promised by the Ethereum merger occurred, including a reduction greater than 99% in energy consumption and its carbon footprint. But analysts who had sounded the alarm about increased centralization before the transition remain concerned that relatively few entities dominate the proof-of-stake mechanism that now underpins the blockchain.
“[The] Top 7 entities controlling >2/3 of the stake is pretty disappointing to see,” tweeted Martin Köppelmann, co-founder of DeFi platform Gnosis.
He posted a chart showing Ethereum staking service Lido managing over 27% of stake-based Ethereum validation, followed by crypto exchange Coinbase with over 14%.
A recent analysis of Dune report claimed that the two biggest Ethereum bettors 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 cryptography and Web3. The fact that Bitcoin is “decentralized enough” is the main reason why it has remained outside the reticle US regulators.
If participation in Ethereum validation becomes too centralized, security experts note, the possibility of a “51% attackbecomes more than theoretical. Additionally, mainstream parties may come under pressure to censor transactions on the blockchain, although Coinbase CEO Brian Armstrong has said that such a scenario would cause his company to withdraw from the staking business.
Contrary to proof of workwhich requires a considerable amount of hardware and energy to profitably operate and maintain a blockchain network, proof of stake depends more on users buying, holding and staking large amounts of cryptocurrency from the network. Some critics have described the merger as a move towards centralization.
The Nakamoto coefficient of Ethereum 2 (a measure of decentralization) after the merger is 2
Most of ETH has been staked with only 2 entities, Lido and Coinbase
Now that Ethereum is proof-of-stake-based, validators with at least 32 ETH can stake or pledge on the network, instead of relying on miners. Small groups can create staking pools to combine their ETH to become validators or join an exchange that offers staking.
“You shouldn’t mess with an exchange,” warned Ethereum lead developer Micah Zoltu in a recent interview with Decryptt. “It’s hurting the network rather than helping, and the return on investment at this time probably isn’t worth it.”
Zoltu recommends users stake their ETH by running their own Ethereum node, which Ethereum holders can do on a personal computer. “It’s doable by anyone with a good enough computer, electricity and internet connection,” he said.
Meanwhile, Köppelmann pointed out that top crypto Bitcoin also has a centralization problem.
“No, dear Bitcoin fans, it’s not better in Bitcoin,” he said. tweeted. “Actually you only need 4 entities to get to >72%.”
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