Ethereum (ETH) successfully made the switch to proof of stake yesterday. From now on, it is validators who put their coins in play in order to process transactions. But is there a risk of high centralization?
Has Ethereum become more centralized with The Merge?
The Merge was a technological tour de force: moving the second largest blockchain to a new consensus method was a key step for Ethereum. But did it create more centralization? It would seem so, if several reports are to be believed.
As a reminder, the proof-of-stake mechanism relies partially on the ability of participants to hold and stake large amounts of tokens. As a direct consequence, the players with the most funds can occupy an important position.
According to Martin Köppelmann, co-founder of Gnosis, only seven entities controlled two-thirds of the tokens in play on Ethereum yesterday. Out of 1000 blocks analyzed, 420 had been created by Lido and Coinbase.
Same sound of bell on the side of the analysis firm Santiment, which explained yesterday that two addresses were particularly dominant. 45% of the validation nodes could be attributed to only two addresses.
According to the data shared by Santiment, large firms do indeed dominate ETH staking. Lido comes out on top, followed by the “Other” category. Next are Coinbase, Kraken and Binance.
The large exchange platforms are therefore particularly represented. This makes the validation of Ethereum blocks rely on particularly centralized entities themselves. And for some, that’s a problem.
Why does this raise questions?
Decentralization is of course one of the basic principles behind the Ethereum project – and crypto-currencies in general. The issue is twofold: on the one hand, it is on this principle that the interest of the blockchain is based, and its incensurability. On the other hand, it is also a question of security. If some entities have too much power over the blockchain, it becomes more vulnerable.
The other risk is the censorship of transactions. Unlike a blockchain, a firm is established in a place, and it can face pressure. So these are all questions that are posed by Ethereum’s move to proof of stake. These are things that we’ll have to watch in the coming months to see how this evolves.