Episode 1

How Big of a Problem Is Ethereum's Centralization?

Has Ethereum's upgrade introduced new risks of centralizing too much power?

By Zack Abrams

November 7, 2022

It's easy to understand how Bitcoin is decentralized — there are miners around the world running the network and each full node has a complete copy of every transaction ever made on the Bitcoin network. Thus, that makes it extremely hard to imagine a scenario in which any centralized institution or actor might successfully shut Bitcoin down.

But since Ethereum shifted from proof-of-work to proof-of-stake earlier this year in its upgrade dubbed "The Merge," its no longer as easy to say both Ethereum and Bitcoin are nearly equally decentralized. Now that Ethereum's network is secured by validators instead of miners, how does the decentralization dynamic change if just a few, large validators were to collude together? If plenty of people are staking their ETH on Coinbase, is that really decentralization? What about decentralized staking pools like Lido?

"[Ethereum is] clearly more decentralized post-Merge than before, and it is clearly easier to participate," said Matt Cutler, CEO of Blocknative. "Future growth in decentralization or extension of decentralization is easier in a post-Merge world ... versus proof-of-work."

What about the risk of a few staking providers teaming up to take down the network? Well, according to Cutler, we shouldn't worry too much, as those actions would be net destructive to the value of ETH itself. Even rogue nodes can be put in their place more easily under the new system.

"The other thing that's amazing about proof-of-stake is if you have rogue validators who start to behave in ways which are counter to the best interests of the network, there are mechanisms to remove them from the network, which you can't do under proof-of-work," said Cutler.

For more on Matt and Zack's discussion, check out our community extra above.