Ethereum is the second largest cryptocurrency by market capitalization. Current market cap is ~$150 billy. Btw, market capitalization is a fancy term for (Market Cap = Shares outstanding x market price).
We know Ethereum is big. It has definitely proven itself as a blockchain to be really useful compared to other blockchains. It is one of the most widely used blockchain for NFTs.
It all worked well and people were happy with it, besides the high gas fees when transacting on Ethereum Blockchain. Apparently, the migration to Proof of Stake (PoS) from Proof of Work (PoW) was inevitable as they were getting a lot of heat for that, especially for energy consumption. In the old process of Proof of Work (PoW), transactions were being confirmed by solving puzzles which required powerful computers to be able to solve those algorithms, which process required a lot of energy consumption. It did spend energy as much as Netherlands (~112 TWh/yr).
The idea was great. Migrating it to PoS proved that the energy consumption went down 99%. The only people who were not happy back then were miners, as most of them got out of business because of ETH migration to PoS (keep in mind, PoS does not solve algorithms by computer power, they are solved through staking). Funny enough, Core Scientific which is one of the biggest publicly traded cryptocurrency mining company in US filed for bankruptcy today.
Anyways, let’s get back to the main issue here.
We all glamorize web3 on how it is all about decentralization and community, on how this is not what government wants and most of the web3 believers are highly against the idea of government having control over a currency, like it the case with the traditional currency.
In almost every web3 blockchain and crypto/NFT project you will read on how their mission is to help community with the product they are launching, it almost gives you the impression like they are non profit organizations. Unfortunately, if you dig deep enough, you’ll quickly realize that most of the well known blockchains are heavily centralized and some of them heavily controlled by government, like the case of Ethereum blockchain.
We wrote an article back then where we shared more details on some of the biggest blockchains and the initial coin offering. Some of them such as Binance and Solana dedicated almost half of the tokens to the founders and the team. Ethereum held a big percentage for its founders and VCs as well. If you want to read that article, here's the link to it.
Why Ethereum is becoming a problem all of a sudden now?
Well, the issue is with the staked ETH after it migrated to Proof of Stake. Over 60% of staked ETH currently is owned by four companies. Lido, a platform that offers liquidity for staked assets, controls over 30% of the stake on Ethereum’s PoS mechanism chain. Binance, Coinbase and Kraken which are the largest crypto exchanges – own more than 30% of the network’s stake. A chart provided by cointelegraph shows the proportion of staked ETH by entity.
Not that decentralized as you can see, in fact it is way more centralized that the traditional currencies. Just imagine if 60% of the total supply of $ was held by 4 big corporations in US!
This is not the only issue that crypto people are concerned about. The idea of being controlled by government is the least thing crypto believers expect. Well, guess what? Ethereum is being criticized for that too.
There is a tool called MEV Watch which checks all Ethereum based transactions. According to MEV, ~60% of the transactions are in OFAC compliance.
Office of Foreign Assets Control (OFAC) is a financial intelligence and enforcement agency of the U.S. Treasury Department. It administers and enforces economic and trade sanctions in support of U.S. national security and foreign policy objectives.
Translating this into plain English, Ethereum is being heavily regulated as most of transactions are OFAC compliant and users transacting have been KYC (Know Your Customer), meaning their identities are known already. This does not necessarily mean a bad thing, but the idea of crypto and blockchain was promoted as currency for which you did not necessarily have to identify yourself.
How serious are people about staying away from Ethereum?
Well, apparently, some big players like Paxful are making a such move. Paxful is a peer-to-peer platform to buy and sell Bitcoin with more than 11.5 million users. They decided to remove ETH from their marketplace.
As per their CEO, Ray Youssef, this move was mainly due to concerns that ETH is not decentralized and it is controlled by a small group of people, and how one day you might even need a permission to be able to use it.
Here’s his tweet where he shared more details on their rationale behind this decision.
While this decision from Paxful did not cause a big drop in prices, if we see more moves like this from other big players in the web3 space, this will definitely will have an impact on Ethereum blockchain.
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Cheers!