• Digital currency vs. application-oriented blockchain
• Problematic centralization tendencies in both processes
• Ethereum blockchain updates the next big hurdle
Anthony Di Iorio, co-founder of Ethereum, commented on the Ethereum merge in an interview with Kitco News at the end of September and referred to centralistic tendencies due to the dominance of a few players within the Ethereum network. The switch to the so-called “Proof of Stake” (PoS) procedure is viewed ambivalently.
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Ethereum merge
The two largest cryptocurrencies differ in many ways: The crypto veteran Bitcoin was created as a purely digital currency. The blockchain is only used to send the digital coins. However, the Ethereum approach is different: Inventor Vitalik Buterin and his co-founders wanted to create an open-source platform that uses smart contracts to map decentralized applications. Both blockchains focus on the forgery-proof validation of transactions. Until the completion of the Ethereum merge on September 15, 2022, both used the so-called “Proof of Work” (PoW) procedure, in which the miners compete to solve complex cryptographic puzzles – only those who complete the task first are allowed to enter in make the blockchain and get the reward.
This mining process is criticized mainly because of its high energy consumption. This is said to have been reduced by 99 percent with the switch to the PoS process at Ethereum. The difference in the procedure is that the validators have to use (“stake”) a certain number of digital coins in order to be selected in a lottery. The new procedure can also ensure more stability, as the inflation rate falls due to the reduction in the number of new coins, the news agency dpa-AFX wrote.
Decentralization in Bitcoin and Ethereum
In PoS, cryptocurrency holders can make block transactions based on their coins – so the more coins a validator owns, the more transactions can be made. The fear that so-called “crypto whales” will use their coin holdings to gain control of the validation is the most frequently voiced criticism of the procedure.
Anthony Di Iorio, who co-founded Ethereum but left in 2015 and founded the blockchain company Decentral, among other things, is now concerned in an interview with Kitco News about whether Ethereum can still meet the demands for decentralization after the merger. He claims that around 50 percent of all validations on the Ethereum blockchain are done from two addresses: Coinbase and Lido. According to Finbold, this is also shown by the Ethereum post-merge inflation analysis. According to this, over 46 percent of the PoS nodes would be controlled by two wallets. These two addresses also have the largest share in transaction processing, writing new blocks on the blockchain and storing data.
However, Anthony Di Iorio also sees a problematic centralization trend in Bitcoin. The complex hardware and enormous energy requirements that mining Bitcoin requires can hardly be met by smaller miners. “It became a system where only high-tech focused companies could make the chips,” explained Anthony Di Iorio. Since ever faster hardware is required, the number of miners is also decreasing here and only a few remain.
Ethereum’s “Flippening” Opportunity
Anthony Di Iorio, on the other hand, is optimistic about the future of Ethereum. In the interview, he clarifies that the merger itself was initially only about a system change and future updates of the Ethereum blockchain represented the “next big hurdle”. As part of Layer Two improvements, functionality will be optimized and gas fees will decrease.
The crypto entrepreneur is also confident that Ethereum will surpass Bitcoin’s market cap in the future: “If Ethereum continues to develop like this, there is a good chance that flippening will happen,” he said. Ethereum currently ranks second on CoinMarketCap with a market cap of $166.6 billion, behind Bitcoin at $383.9 billion (as of 10/06/2022).
Editorial office finanzen.net
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