Could Post-Merge Ethereum Have a Centralization Problem?
Ethereum recently completed its merge into Ethereum 2.0. Click here to find out if this will bring about a centralization problem?
Ethereum recently completed its long drawn-out merge into Ethereum 2.0 but the difficulties it has faced have only been necessary for the opportunities it could achieve.
It takes time for a platform to completely reinvent itself. Today, the price of Ethereum sits around $1,000, making it the leading crypto coin behind Bitcoin. With the merge currently being phased into the existing network, however, that price is set to soar higher than ever before, with some experts even suggesting that Ethereum could overtake Bitcoin in the next ten years.
So What Is The Merge Going To Do For Ethereum?
Having already instigated the new beacon chain and its proof-of-stake (POS) consensus method, Ethereum is yet to introdcuce its sharding mechanism, which is due to entirely reinvent the way the blockchain works. Blockchains like Bitcoin still run on a proof-of-work (POW) system which asks its users to mine a block to validate the hash. This uses a large amount of computer power and energy, with miners competing against each other to calculate the correct hash, with the winning validator being rewarded in the network's token.
With POS, however, this process is different. Now, instead of competing against each other, users of Ethereum will instead deposit 32 ETH to become a validator. The blockchain will then select a validator at random to verify the hash, rather than allowing several miners to calculate and validate blocks. Under this mechanism, the process of forming new blocks and validating existing ones has become far safer and more sustainable.
As well as this, the blockchain will become far more efficient with its use of sharding. Here, the running of nodes is going to be made easier, as each user will store just a fraction of data in order to speed up the platform and prevent users from having to store an entire blockchain history. In this way, validators of Ethereum will be able to confirm data and make it available to the network as a whole, which will subsequently create a far more efficient, fast and secure method to run nodes.
With this in mind, it’s fair to say the merge is a positive and revolutionary step for Ethereum. But that doesn’t mean it’ll be an entirely smooth ride.
The Post-Merge Centralisation Problem
Ethereum co-founder Vitalik Buterin has publicly stated that he is worried about the risk of centralization following the merge’s completion. Right now, Ethereum remains a decentralised organisation, meaning the control and decision-making is down to a distributed network rather than an organisation or individual. Because of this, there is no need for a middleman to make decisions, with a far lower risk of the platform being ruled by a single point of power, authority or control. This is the same across the majority of the market, with even Bitcoin remaining decentralised despite its current high price and status as a market leader.
Having said this, a decentralised finance platform could disturb the network now that the POS mechanism has been put in place. It would allow owners of ETH to earn a passive income without actually having to sell their tokens. These staked coins are then used to validate transactions and secure the network.
The reason this is potentially damaging is that, under the POS system, solo-staking requires users to set up dedicated hardware and deposit 32 ETH to become a validator. A decentralised finance platform, on the other hand, enables users to pool their ETH and participate in staking even if they have not deposited the necessary 32 ETH. This brings with it a centralisation risk, as a single platform’s dominance in the staking community (as well as its hyper-concentrated staking power) could lead to a centralised attack on the network once it has switched to POS.
Is A Centralised Attack Going To Happen?
While Buterin has noted his concern about the risk of centralisation, he has also stated that it is important “not to catastrophize the issue”. According to him, although concerns about centralisation are warranted, one of the largest decentralised finance platforms currently has around twenty-one delegates and nodes who are running the validators inside of the organisation, which means that there is a good amount of decentralisation already present within the network.
Similarly, decentralised finance platform developers believe that these platforms provide more transparency on validators responsible for staking. For them, the whole point of the project is to decentralise ETH staking and prevent centralised platforms from dominating the market. Meanwhile, a researcher at the Ethereum Foundation, Danny Ryan, has suggested placing a limit on the level of ETH which can be staked could stop an organisation gaining majority control of a distributed ledger and interrupting the recording of new blocks.
Should Users Of Ethereum Be Concerned?
Whatever happens, it seems like investors do not have to be too concerned about an actual centralisation attack on Ethereum’s network, especially as this sort of attack is at the forefront of Buterin’s attention. After all, one of Ethereum’s key traits is its decentralised blockchain, as well as its active push for decentralised projects to be formed inside its network. The end goal is to ensure that, when Web3 comes around, the internet becomes entirely decentralised on a blockchain.
For this reason, any threat to Ethereum’s own decentralisation is going to be investigated and discussed with transparency. Most ETH traders are excited about the prospects that the merge has to offer, and the benefits of gaining an abundance of new users, projects and staked ETH. In this light, any issues surrounding centralisation are likely to be quenched as soon as they begin, and it’s unlikely that any singular entity will gain an authority rule over the Ethereum network.
Crypto Trends in October 2022
It’s October! What's trending in crypto this month?
Crypto Trends in September 2022
It’s September! What's trending in crypto this month?
All About Crypto Seasonality
The total market capitalization of the top 100 cryptocurrencies has increased over the past seven years from ...
Getting to Grips with Arbitrage
The world of trading has many different tricks and tools refined over the years by strategists and financiers, ...
The Blossoming Intersection of Fashion and Crypto: What Does the Future Hold?
Over the last few years, fashion and crypto have been entwined together. Click here to find out what this means ...
Instagram to Add Support for NFTs
Instagram to launch NFT functionality on its platform in 100 countries worldwide
Can Ethereum’s Ecosystem Keep Its Future Bright Amidst This Crypto Winter?
Ethereum has steadily been building an ecosystem unlike any other. Click here to find out why its future remains ...
Buterin Criticises Bitcoin’s Stock-to-Flow Price Prediction Model – But What Is It?
The stock-to-flow prediction model has caused a mixed reaction amongst the crypto community. Click here to find ...
AVAX, the Ethereum Killer: What You Need to Know
AVAX, which is a token run on the Avalanche blockchain, is said to be the Ethereum killer. Click here to find out ...
A ‘Digital Library of Italian Culture’ in Puglia: Is It Expanding NFT Use to New Areas?
The University Aldo Moro is currently using NFTs as a way to reignite the culture of Puglia. Click here to find ...
Crypto’s Position in the Italian Economy: Will It Only Grow and What Would Regulation Do?
Crypto is continuing to grow in the Italian economy. Click here to find out how and what regulation might mean ...
Will the EU Adopt a Digital Currency?
Cryptocurrency is growing across the world, with more and more countries starting to embrace it. Click here to ...
Ethereum’s Proof of Stake System: Do Other Coins Use It?
Ethereum is currently switching to the proof of stake system. Click here to find out what this means and whether ...
How has Ethereum Fared in Price and Reputation in Light of Terra and Tether?
The de-pegging of Terra and Tether has had wide repercussions for the crypto market. Click here to find out how ...
NFTs and Crypto: Is the Relationship Between Blockchain Tech and Social Media Growing Ever Closer?
Social media has played a large role in the blockchain’s steady rise. Click here to find out why the relationship ...
Bitcoin’s Price Declines: Are The Sell-Offs Simply Linked To The Market, Or Is There A Larger Problem With What Bitcoin Can Accomplish?
De-Pegging And De-Pegging Concerns: Will The Terra And Tether Debacle Impact Stablecoin Assets In The Future?
The Use Of Stablecoins In Crypto Trading
Stablecoins supposedly offer a way to invest in crypto without the concern of fluctuating markets. Click here to ...
Italy's CONSOB: How is It Impacting Crypto in the Country?
Despite crypto’s ongoing global rise, Italy’s CONSOB are still warning against it. Click here to find out how and ...
Upcoming end of service for BSV and NEU currency
Read more about the delisting of these cryptocurrencies.
We will be removing several markets for BTC next Monday 5.12
Read more about the removal of these trading pairs.
We are listing Man City (CITY) and Napoli (NAP) Fan Tokens!
We are excited to be listing new Fan Tokens from two of the top football teams in Europe!
Several crypto transfers will be unavailable on 27 November, 10am - 1pm (UTC)
We are listing Barcelona (BAR) and Paris St Germain (PSG) Fan Tokens!
We are excited to be listing new Fan Tokens from two of the top football teams in Europe!
Delisting of ETH markets
Black Friday Bonus: Get 50% reduced trading fees for one week
To celebrate Black Friday, we’re giving you 50% reduced fees for one whole week!
Payments Unavailable on 11 November
Payments Unavailable on 1st of November
Scheduled Maintenance on November 3rd, from 05:30 am to 06:15 am (UTC)
3.03 The Dow theory: principles and statements
This lesson helps you understand the principles and statements of Dow’s theory.
3.05 Candlestick charts and patterns
This lesson focuses on understanding candlestick charts and patterns.
2.05 Bid-Ask spread and slippage
This lesson explains bid-ask spread and slippage.
2.04 Understanding market capitalization
This lesson centers on understanding cryptocurrency market capitalization.
2.03 Common crypto trading terms
This lesson is a compilation of the most commonly used crypto trading terms.
2.02 How to start cryptocurrency trading
This lesson explains a step-by-step process on how to start cryptocurrency trading.
2.01 Why to invest in cryptocurrencies
This lesson explains why cryptocurrencies might be a good asset to include in your investment portfolio.
3.02 Understanding technical analysis
This lesson helps you understand technical analysis in crypto trading.
3.01 What is fundamental analysis in crypto?
This lesson walks you through the fundamental analysis of cryptocurrencies.
3.04 What are the types of charts? How to read a chart?
This lesson explains how to read a chart and types of charts in technical analysis.