Data released hours after the Merge prompted concerns about the alleged centralization of PoS.
Analysis from Santiment indicates that 46.15% of Ethereum’s PoS nodes are controlled by only two addresses.
Hours after the Merge, the first address has validated about 188 blocks or 28.97% of the nodes, and the second has validated 16.18%, or 105 blocks. On Twitter, the data became a controversial topic as users debated about the impact of the Merge on centralization for the largest network in the world.
According to our #Ethereum Post Merge Inflation dashboard, 46.15% of the #proofofstake nodes for storing data, processing transactions, and adding new #blockchain blocks can be attributed to just two addresses. This heavy dominance by these addresses is something to watch. pic.twitter.com/KQdFNgGloD
— Santiment (@santimentfeed) September 15, 2022
Ahead of the Merge, the blockchain analytics platform Nansen released a report showing five entities holding 64% of all staked Ether, with Coinbase, Kraken, and Binance accounting for nearly 30% of staked ETH. Reports also showed that the majority of 4,653 active Ethereum nodes are in the hands of centralized web service providers like Amazon Web Services (AWS).
“Since the successful completion of the merge, the majority of the blocks – somewhere around 40% or more – have been built by two addresses belonging to Lido and Coinbase. It isn’t ideal to see more than 40% of blocks being settled by two providers, particularly one that is a centralized service provider (Coinbase)”, explained Ryan Rasmussen, Crypto Research Analyst at Bitwise. He added:
This isn’t ideal. However, I think Lido will struggle to maintain this market share as more staking service providers and competitors of Lido enter the space and solutions like Rocket Pool become more popular. https://t.co/A5s9FeICLD
— Ryan Rasmussen (@RasterlyRock) September 15, 2022
PoS is often believed to lead to centralization since it favors those with a higher token supply over those with lower amounts. As an example, the new consensus mechanism in the Ethereum blockchain relies on validators to verify transactions, not miners. To run a validator and be rewarded, participants must stake 32 ETH, which is equivalent to roughly $48,225 at press time.
PoS supporters, however, argue that the mechanism is more secure and eco-friendly than PoW. Ethereum co-founder Vitalik Buterin has predicted that the transition would not only bring down the energy consumption by around 95% but also help scale the network, with the transaction processing expected to get on par with centralized payment processors, features that are expected to take place in the second half of 2023.