The historic Merge upgrade which took place last month resulted in anticipation regarding Ethereum blockchain’s prospects for the future with the possibility of attracting new users to the ecosystem housing the second largest cryptocurrency by market cap.
However, with the prevailing market downturn, the initial stages of the Merge have seen a number of pressing issues. Apart from a loss of market capitalization and decline in market price, there are now talks that the Ethereum network has become more centralized than ever.
How is Ethereum becoming more centralized?
The Merge was expected to drive more interest in Ethereum after the network officially transitioned to the Proof-of-Stake (PoS) protocol around September 15. The upgrade is meant to make Ethereum a deflationary asset and potentially attract institutional capital.
But now, analysts are pointing at concerns surrounding increased centralization due to few entities dominating the new proof-of-stake mechanism. That is, a few individuals have the largest staking power of the new consensus.
Martin Köppelmann, co-founder of DeFi platform Gnosis posted on twitter a chart showing Ethereum staking service, Lido administering more than twenty-seven percent of stake-based Ethereum validation, with notable crypto exchange, Coinbase following with over fourteen percent. With this comment:
“[The] top 7 entities controlling >2/3 of the stake is pretty disappointing to see tbh,”
In addition, a Dune Analytics report substantiated that the two largest stakers of Ethereum are currently Lido – 4.16 million ETH (30.1%), Coinbase – 2 million ETH (14.5%). The remaining stakers, classified as “other,” have 3.65 million ETH (26.5%).
This and many more brings to fore the question whether the ethereum ecosystem is truly decentralised as it claims to be. There are concerns that if participation in Ethereum validation remains in the hands of a few entities, there is a high probability of an attack. In view of this, some critics have described the Merge as a move toward centralization.
What next for Ethereum?
However, proponents believe that the upgrade will have a long-term effect considering it’s just part of Ethereum’s more extensive roadmap. As ethereum continues to battle the prevailing macroeconomic factors that have outweighed equities and cryptocurrencies, it is also facing regulatory uncertainty based on its possible classification as a security.
Recall that the Securities Exchange Commission (SEC) chair Gary Gensler recently noted that PoS assets could lead to anticipation from investors who might intend to make profits. Therefore, following the Merge, a section of investors are expecting Ethereum to be SEC’s next target.