Understanding Ethereum’s Centralization Risks
You may be wondering how Ethereum, which is promoted as a decentralized ecosystem, could have issues with centralization. It’s true that the crypto community opposes centralization, as traditional finance operates through it. So what exactly is the problem?
In simpler terms, Ethereum is decentralized but faces risks of centralization due to the introduction of Proof of Stake (PoS). Initially, Ethereum used Proof of Work (PoW), which slowed down transactions and was not an ideal solution for a fast-emerging blockchain. However, after the Merge, validators with more stakes than the general community held considerable control over the network, potentially influencing transaction validation rates and prices.
The potential barriers of centralization are currently only hypothetical. But it’s important to address these risks before they become reality to prevent Ethereum’s price from being affected. Unfortunately, even the creator of Ethereum does not have a solution yet. But that doesn’t mean there’s no way of overcoming this challenge.
The Node Centralization Problem
It has recently been discovered that most active Ethereum nodes interact with centralized bodies like Amazon, exposing the network to a centralized point of failure. The distribution of nodes from web service providers is unfair because only one leading group contributes to the network the most.
The blockchain will be entirely decentralized only when all nodes can run the network on regular hardware, according to the Ethereum Foundation. However, this is currently far from possible due to the computational power required and the need for powerful ASIC-based rigs.
Upcoming updates like Verge of the Purge aim to address these issues by minimizing data quantity and simplifying network accessibility over time.
Other Factors Contributing to Ethereum’s Centralization Risks
- Documentation accessibility must be improved;
- Distributed staking needs prioritization;
- Staking should be made more secure and convenient;
- Scalability must be solved immediately.
Centralization Also Affects Mining
Centralization affects cryptocurrency mining and drives increased competitiveness among miners. The use of ASICs has overtaken GPUs due to their power and profitability. However, this leads to concerns about control over hashing power on the blockchain.
Still, ASIC Mining Can Be Decentralized
To counterfire potential market domination by a few miners using ASICs, ASIC mining must be decentralized so everyone can mine seamlessly. Forking is also an alternative but has proven to be short-term.
ASIC vs GPU Mining: Which Is Better?
Mining has evolved from using CPUs to GPUs and now ASICs. GPUs are affordable and flexible but less energy efficient compared to ASICs. On the other hand, ASICs are expensive but more energy efficient in terms of hash rate delivery.
Bottom Line
Vitalik Buterin discussed finding a permanent solution for combating centralization risks on the blockchain, estimating it could take around 20 years due to complexity. Until then, centralization might become more problematic for cryptocurrency communities.
Ethereum faces significant challenges related to centralization risks stemming from its move towards PoS and issues with node distribution. While solutions are being developed, these challenges require immediate attention to maintain Ethereum’s core features and ensure broader decentralization across its ecosystem.
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