There are growing concerns among experts about Ethereum's centralisation. The updates made over the past year have solved many problems, but also created a new obstacle. According to them, Ethereum is becoming increasingly centralised, and this could cause many more problems in the future.
Ethereum, one of the largest blockchains, has seen notable growth in the so-called 'strike' of Ether (ETH). This concerns increase is mainly due to two recent enhancements: the Merge and Shanghai upgrades. However, this growth has also led to concerns about greater centralisation and lower returns for those who strike their Ether.
The risks of more centralisation
Although there are alternatives that operate in a more decentralised manner, such as the Lido platform, centralisation within Ethereum is increasing. This can pose problems for the security of the entire network. This is because there are only a few major players who can have a lot of influence. These can become targets for cyber attacks or collaborate in ways that are not good for the whole community.
Liquid strike, a popular method of strike, has introduced a new risk: rehypothecation. This means that the same tokens are used multiple times as collateral in different financial systems. If such a token suddenly becomes worth much less or is attacked, it can lead to major problems in multiple systems at once.
Less revenue for Ether strikers
Increased strike activity has made it less attractive to strike ether. Before the Shanghai upgrade, you were still getting a 7.3% return on your deployed ether. Now that has dropped to around 5.5%. This is especially striking when you compare it to the returns of traditional financial products, which are actually rising. So it is becoming less and less interesting for small players to strike Ether, which will further reduce the number of strikers in the long run.
Strike is theoretically available to everyone, so it doesn't really need to be centralised at all. But in practice, you need to have 32 ETH (about $52,000) to participate. Don't have that? Then you have to stake your ether through a large, centralised party. Lido is one such party and now manages 8.9 million ETH. Other big names like Coinbase, Kraken and Binance also collectively manage more than 5 million ETH. These big parties will gain more power the more people strike through them, making Ethereum's network increasingly centralised. And that could cause problems in the long run, according to experts.