Ethereum Called No Longer Decentralized Because Of Staking Features

Ethereum, the second largest crypto asset after Bitcoin. (Photo; Doc. Unsplash)

JAKARTA Since Ethereum's capabilities have been upgraded in the Merge and Shanghai upgrades, which make Ethereum shift from proof-of-work (PoW) to proof-of-stake (PoS), Ethereum's staking ecosystem has experienced rapid growth.

On the other hand, this growth also brings new challenges that need to be overcome, namely the risk of centralization. Analysts, with the leader Nikolaos Panigirtzoglou of JPMorgan, have expressed concern regarding centralization in their latest report.

Sebagai informasi tambahan, staking ETH (Ethereum) adalah proses di mana pemegang Ether (mata uang kripto pada jaringan Ethereum) menjatu sejumlah Ether mereka dalam smart contract khusus sebagai jaminan untuk mendukung operasi jaringan. Dalam pertukapan atas kontribusi ini, mereka menerima pembayaran berupa bunga atau hadiah dalam bentuk Ether tambahan sebagai hadiah karena turut membantu memvalidasi transakski dan mengamankan jaringan di blockchain Ethereum.

The presence of Ethereum staking after The Merge upgrade has accelerated the transaction process and made it more economical. However, according to JPMorgan analysts, this growth resulted in network centralization and a decline in overall staking results. Staking results fell from 7.3% to 5.5%. This centralization, according to analysts, is mainly due to liquid staking providers like Lido.

Although liquid staking providers are supposed to be decentralized, in fact, suggest a high centralization. The top five providers control more than 50% of the staking on the Ethereum network, with Lido in control of nearly a third of the staking. This situation poses a risk because highly concentrated entities can be a single point of failure that is prone to attacks and disruptions.

JPMorgan's analysis also notes that when centralization occurs, these entities can collaborate to build an oligopoly market, which could adversely impact a wider crypto community. There is potential for transaction censorship or unfair profit from final user transactions.

In addition to centralization risks, Ethereum is also facing criticism regarding the unsatisfactory growth of network activity. Although Ethereum's network energy consumption has dropped dramatically after the proof-of-stake increase, network activity has yet to reach expected expectations.