Effects of high ETH centralization after The Merge
High level of Ethereum centralization after The Merge
September 15, 2022 is a historic date that will be permanently written on the pages of the history of the cryptocurrency world. On that day, the long-awaited update of the Ethereum network called The Merge took place, as a result of which the second largest cryptocurrency in terms of market capitalization switched from proof-of-work (PoW) mining consensus to proof-of-stake (PoS). As a result of this event, the miners who used to operate the ETH network were replaced with validators.
Centralization of the ETH network and what it entails
The Ethereum Foundation indicated in its statement that this update will make the Ethereum network 99.95% more energy efficient and pave the way for future scaling solutions, including another milestone that will undoubtedly be sharding.
However, just before this major update, the Ethereum community raised concerns about possible censorship of individual transactions. This is due to the fact that big players will control a large part of the ETH network.
The level of concern about PoS centralization was further exacerbated when the first network update data came out a few hours after the update. The analysis carried out by Santiment shows that as many as 46.15% of Ethereum PoS nodes are currently controlled by only two ETH addresses.
Just a few hours after the Merge update, the first of these addresses approved about 188 blocks or 28.97% of nodes, while the second was responsible for approving 16.18% of nodes, or 105 blocks. These events sparked a heated discussion on Twitter, and the published data became an extremely controversial topic as users debated the influence of The Merge on centralizing the entire ETH network.
- Since the successful completion of the merger, most of the blocks have been built by two addresses belonging to Lido and Coinbase. In the opinion of the community gathered around the Ethereum project, it is highly undesirable that more than 40% of the blocks were billed by two providers, especially one which is a centralized service provider (Coinbase), explained Ryan Rasmussen, a cryptocurrency research analyst at Bitwise.
-PoS is often thought to lead to centralization as it favors those Ethereum network participants who have a larger supply of ETH tokens in their pockets over those with fewer. As an example, the new consensus mechanism in the Ethereum blockchain is designed in such a way that validators, not miners, verify transactions. To become a validator and then receive rewards, participants must purchase and deposit 32 ETH, which is over $ 48,000 at the current rate, he added.
On Monday morning, a single ETH token moves from hand to hand at a price of around $ 1,300. This means that after updating the Ethereum network, the price of the second largest cryptocurrency fell by about 20%.
