A report from Sheena Shah, an analyst for Morgan Stanley (an American multinational investment management and financial services), claimed that since the network switched to the Proof-of-Stake (PoS) algorithm, Ethereum has grown more centralized.
Validators certify the transactions on the network since Ethereum switched from a Proof-of-Work consensus to a Proof-of-Stake one.
According to the research, only four businesses currently control 60% of Ethereum’s validators.
In the paper, Morgan Stanley claimed that 50% of the network’s validators utilize Amazon Web Services, while 65% of Ethereum’s nodes are housed in the cloud (AWS).
The financial institute fears that – if some of these companies decide to ban certain cryptocurrency goods or participants – the network might become problematic. Additionally, it pointed out that a prolonged network outage may result in an even greater problem.
“The crypto ecosystem has evolved over recent years with many applications, code, services and companies feeding into the underlying decentralized blockchains,” Shah stated. “Which we would argue is causing parts of the broader crypto ecosystem to become less decentralized and more dependent on individual services,”
The ecosystem has created crypto-focused, regulation-friendly products that draw consumers, which is another reason why the cryptocurrency industry is losing its decentralized nature and “beginning to appear more like the centralized banking sector,” according to the paper.
TradFi is concurrently launching cryptocurrency products to provide its clients with services like custody. For instance, the Bank of New York Mellon (BK) has permitted certain of its American clients to retain and transfer ether and bitcoin (BTC-USD) (ETH-USD).
One of the biggest arguments against a staking consensus mechanism for Ethereum is the fact that it becomes easier for large validators to “own” most of the network.
The crucial indicator of network dominance under the new miner-free system is that just seven people possess more than two-thirds of the stake on Ethereum’s proof-of-stake network at this time.
The third-largest cryptocurrency exchange in the world, Coinbase, and a sort of community-led staking collective called Lido both have 27.5% and 14.5% of the network’s stake, respectively.