Disclaimer: This article is sponsored content and should not be considered as financial or investment advice. Always do your own research before making any financial decisions. The opinions expressed in this article are those of the author and do not necessarily reflect the views of CryptoGlobe.
You may wonder how Ethereum has problems with centralization if it’s promoted as an entire decentralized ecosystem. It’s also known that the crypto community is against centralization, as traditional finance operates through it. So, what’s the deal?
In simpler words, Ethereum is decentralized but risks centralization due to the introduction of PoS. Initially, Ethereum worked with the PoW consensus mechanism, which slowed down transactions and wasn’t generally an excellent solution for a fast-emerging blockchain. After the Merge, it seemed like validators with more stakes than the general community held considerable control over the network, which might influence the rate and price of transaction validation.
The barriers of centralization are currently only a supposition, but considering that it’s possible, it would be best to take action before it happens so the Ethereum price won’t be dragged from its core features. Unfortunately, not even the creator of Ethereum doesn’t have a solution yet. But that doesn’t mean there’s no way of overcoming this challenge.
The node centralization problem
It has been recently discovered that most active Ethereum nodes interact with centralized bodies, like Amazon, exposing the network to a centralized point of failure. Hence, the distribution of nodes from web service providers isn’t fair at all since only one leading group contributes to the network the most.
As the Ethereum Foundation stated, the blockchain will be entirely decentralized only when all nodes can run the network on regular hardware, which is far from possible now. The computational power required to mine and run nodes and the need for powerful ASIC-based rigs make it challenging for some individuals to compete with those with considerable financial resources.
This development is discussed as the concept of statelessness, and Buterin said that considerable steps are taken towards its achievement through upcoming updates like the Verge of the Purge. The first aims to minimize the data quantity required to be stored by validators, while the other will reduce old network history and should simplify the network accessibility over time.
Other factors contributing to Ethereum’s centralization risks
Buterin also expressed insight on when the solution would be introduced within the system, to which he considered that it could appear in a span of ten or 20 years due to the complexity of the subject. That’s because besides node centralization, other factors hinder Ethereum’s entire decentralization:
- Documentation should be more accessible to understand beginners and experts as well, so they can implement changes within their transactions or operations better;
- Distributed staking needs to be prioritized because it leverages security and an environment with no single points of failure
- Staking should generally be changed so that it’s more secure and convenient since it faced similar difficulties in the past;
- Scalability should be immediately solved because ZK-rollups are not enough to maintain the entire network without additional support from other scaling protocols;
Centralization also affects mining
Centralization has consequences on more than the development of the blockchain. It also affects cryptocurrency mining, one of the leading things that drive the network’s safety. Unfortunately, the increased competitiveness reached miners too, because using graphics processing units (GPUs) is not profitable anymore, having to switch to expensive ASICs (application-specific integrated circuits). These hardware pieces have bees designed to mine specific crypto useless to mine with a GPU since ASICs are considerably more powerful and lucrative.
There aren’t many ASIC manufacturers worldwide, which is why mining tends to get centralized since they have more control over the distribution of hashing. What’s more worrying is that companies selling these ASICs also have the technology to develop something even better, so GPUs stand no chance against them. Consequently, miners using ASICs might have the initiative to control the hashing power on the blockchain and overturn non-ASIC miners.
Still, ASIC mining can be decentralized
To counterfire the possibility of a few miners ruling the market, ASIC mining must be decentralized for everyone to be able to mine seamlessly. Some solutions would include a decentralized ASIC manufacturing environment, where most companies would create ASICs so that prices would go down and the competition would be fairer.
Forking is also an alternative to decentralization since it minimizes the usefulness of ASICs, but this has proven to be made only for the short term. In time, ASICs catch up to the algorithm, with forking being subject to triggering code problems.
ASIC vs GPU mining: Which is better?
When mining Bitcoins became a thing, anyone with a regular PC and CPU could do the job, but while mining became more complex and the market changed, miners had to switch to GPUs to face the competition. Still, it wasn’t enough to keep up with growing demand and coin supply.
However, GPUs are still used for those wanting to start mining. These components are affordable and easy to install. GPUs are flexible in terms of usage, so even if they’re great for mining, they can also be used in gaming or video editing. Still, they’re not energy efficient, even though they consume less energy than ASICs.
ASICs, on the other hand, are built with one purpose, so they are only for specific mining programs. These components are expensive, need more maintenance and cooling to function at their best and consume more energy compared to GPUs. But they’re more energy efficient in regard to the hash rate delivery, making them more effective for miners than even the best GPU on the market.
Of course, most miners choose to use ASICs to leverage consistent income. ASICs might face another increased demand as the following Bitcoin halving approaches, and Ethereum faces challenges in mining handling, so GPUs will slowly lose ground.
Vitalik Buterin, Ethereum’s creator, discussed the possibility of finding a permanent solution for combating the risk of centralization on the blockchain. He remarked that it’s most likely for the answer to be developed in around 20 years, given the complexity of the subject. Until then, centralization might become more of a problem for cryptocurrency communities.
Featured image via Freepik.