Has the Merge centralized Ethereum?

After the successful Merge, Ethereum changed its consensus model to Proof of Stake. Does being on Proof of Stake make Ethereum more centralized?

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Jay Crypto

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Last updated Sep 17, 2022 at 5:28 PM

Posted Sep 17, 2022 at 4:00 PM

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Ethereum consensus Models:

Ethereum 1.0 – the Ethereum we knew before – worked on a proof of work model to verify transactions.  In proof of work, a huge network of incredible processing power is required to validate transactions before recording them on the blockchain. This effort requires a  huge number of computers using a  huge amount of electricity so that miners can validate transactions – giving rise to carbon emissions in the process.

With the Merge and update, we now have ETH 2.0 that works on a green consensus model, the proof of stake. Anyone can become a validator without buying any hardware. A buyer must have 32 ETH staked to become a node and validate transactions. 

What changed after the Merge:

The Ethereum merge has not only turned Ethereum into an energy-efficient chain but also has increased its scalability. Ethereum saves over 99% of energy and with this update and shift to PoS, Ethereum will save 0.2% of the world’s electricity.

Ethereum has 100,000 Transactions Per Second speed on hand compared to its previous version which had a TPS of only 12 to 15. Faster transactions mean there will be no network transactions and the buyers will not have to pay extra gas fees. Ethereum Virtual Machine EVM is the most effective tool for  developers in the blockchain space to create dApps, NFTs, and DeFi models. With a greater number of projects, the Ethereum network will keep expanding in the future. Therefore, to handle that much network throughput it must be faster and cheaper.

Ethereum 51% hack?

Any blockchain including Ethereum is secure because of its decentralized nature. A group of independent nodes validates the transactions. To record any hostile transaction, at least 51% of the validator nodes must agree to do so.

In the Proof of Work (PoW) model, to gain this much stake in a blockchain a lot of nodes are required to work in coherence which is theoretically not possible to get. The Proof of Stake consensus model requires validators to deposit tokens and the validators are chosen at random which makes it even harder to gain control.

Ethereum requires 32 ETH to become a node validator. There are 222,052 validators on Ethereum who deposit 7,105,596 ETH (~$10,658,496,000) in total. To gain a 51% stake in the Ethereum blockchain the hostile group of validators will have to lock Ethereum worth over $5 billion just to record a few hostile transactions – a huge cost. Therefore, the chance of a 51% attack is minimal.

Is Ethereum centralized?

The Merge was successful and Ethereum is on a green blockchain now, but data recently revealed raises fresh centralization concerns. According to our Ethereum Post Merge Inflation dashboard, 46.15% of the share in Proof of Stake is owned by only 2 addresses. These two addresses hold an unhealthy percentage of Ethereum nodes. Both addresses are actively validating blocks on the Ethereum chain.

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Ethereum Post Merge Inflation

Not only this, Binance, Kraken, and Coinbase hold 30% of all staked Ethereum and only 5 entities hold 64% of all stake Ethereum. Since all these node providers are online, most of these are using centralized web services like Amazon Web Service (AWS) to validate the transactions.

Ethereum is secretly turning into a centralized asset and the process might speed up with this new consensus model. The current Proof of Stake model is based on validators, not on miners. This favors those who have more tokens and not those who have fewer of them.

The Proof of Stake mechanism is still immature and not hard tested. Therefore, it might invite some issues in the future; in fact,  a few have started popping up already. We are unable to decide if controlling carbon emissions at the cost of decentralization was a fair trade or not.

Ethereum is setting a precedent for other major blockchain projects if this merge goes fine, as it is going now. Do you think Bitcoin should also decide to change its consensus model to Proof of Stake as Ethereum has done?

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