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Numerous Ethereum merging advantages have materialized, including a greater-than-99% decrease in energy consumption and carbon impact. However, analysts who had raised alarms about increased centralization before the transition are concerned that relatively few entities dominate the proof-of-stake mechanism that is now the blockchain's underlying mechanism.
Martin Koppelmann, the cofounder of the DeFi platform Gnosis, lamented on Twitter that the top seven firms controlled more than two-thirds of the stock.
He published a figure indicating that Ethereum staking provider Lido handles over 27% of stake-based Ethereum validation, followed by cryptocurrency exchange Coinbase with over 14%.
According to recent research by Dune Analytics, the two largest Ethereum holders are presently Lido with 4.16 million ETH (30.1%) and Coinbase with 2 million ETH (14.5%). The remaining “other” stakeholders have 3.65 million ETH (26.5%).
Decentralization is a primary goal of cryptography and Web3. The fact that Bitcoin is “sufficiently decentralized” is why U.S. regulators have mostly ignored it.
According to security experts, the danger of a “51 percent assault” becomes more than theoretical if participation in Ethereum validation becomes excessively concentrated. Further, powerful parties might be compelled to filter blockchain transactions, although Coinbase CEO Brian Armstrong has stated that such a scenario would force his company to exit the staking industry.
In contrast to proof-of-work, which necessitates a substantial amount of hardware and energy to create and run a blockchain network financially, proof-of-stake relies on users purchasing, keeping, and staking huge quantities of the network’s cryptocurrency. Some opponents have characterized the merger as an act of centralization.
Now that Ethereum is based on proof of stake, validators with a minimum of 32 ETH can stake or commit to the network rather than depending on miners. Smaller organizations can build staking pools to pool their ETH and become validators, or they can join a staking-enabled exchange.
In a recent interview with Decrypt, Ethereum core engineer Micah Zoltu said, “You should not bet on an exchange.” It does more harm than good to the network, and the return on investment is probably insufficient.
Zoltu suggests that people stake their ETH by operating their own Ethereum node on a personal computer, which holders of Ethereum may do. “Anyone with a suitably capable computer, electricity, and internet can accomplish it,” he stated.
Meanwhile, Koppelmann noted that the leading cryptocurrency, Bitcoin, also has a centralization issue.
No, Bitcoin enthusiasts, it is not superior in Bitcoin, he tweeted. In actuality, just four entities are required to reach >72%.