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Hours after The Ethereum Merge event, more than 40% of the network’s blocks were added by Coinbase and Lido alone.
The shift from PoW to PoS is seen by developers as a way to defeat the centralization of the second-largest blockchain network by making it harder for individual entities to forge the Ethereum ledger. But early signs of network consolidation have raised concerns that those hopes may not materialize.
“Of the last 1,000 blocks, 420 were built by Lido and Coinbase alone,” Martin Köppelmann, co-founder of Gnosis, an Ethereum infrastructure company, wrote in a tweet.
In his remarks, Köppelmann mentioned that only seven players own more than two-thirds of the shares on Ethereum’s PoS network – the main measure of network strength in a miner-free system. Lido, a community-led Staking platform, and Coinbase, the world’s third-largest cryptocurrency exchange, own 27.5% and 14.5% of the network, respectively.
Ethereum’s long-awaited merger with PoS was successfully completed at 6:42 UTC on Thursday morning. The new system invites people to stake 32 ETH on the platform, granting them the ability to confirm transactions into the Ethereum ledger. That requirement ($50,000 at the time of writing), coupled with the technical difficulty of setting up a validation system, means that only a few people can become validators on their own.
See also: The Merge completes – Ethereum moves to Proof-of-Stake
As a result, ETH has poured into services offered by Coinbase, Lido, and other staking pools that allow users to become validators and earn rewards without much hassle.
Too much money in too few services has raised concerns: If a single entity controls more than 66% of the network’s ether, it will likely make it more difficult for others to write transactions to Ethereum’s ledger.
Concerns about validator centralization became more common last month after U.S. government sanctions raised questions about whether validators could be forced to censor transactions coming from certain blockchain addresses. Some, though not all, validators in the United States have announced that they will begin ignoring transactions from the sanctioned Tornado Crash, meaning it may be more difficult for such transactions to be included in Ethereum’s decentralized ledger.
“This is consolidation and consolidation = centralization. And that’s very dangerous. why? Because exchanges are under government control.” Said Chris Terry, managing director at SmartFi, a cryptocurrency lending platform.
Concerns about centralization have led some to compare ETH under PoS to centralized fiat currencies that blockchains seek to overcome. “ETH is now created exclusively digitally by placing parameters under the control of its central planners,” Max Gagliardi, co-founder of Ancova, wrote in a tweet.
