Coinbase’s emergence as the Ethereum network’s largest node operator raises concerns about network centralization that could worsen as institutional adoption accelerates, industry executives told Cointelegraph. On March 19, Coinbase published a report disclosing that the US cryptocurrency exchange controlled more than 11% of staked Ether (ETH), more than any other Ethereum node operator. According to Karan Sirdesai, CEO of Web3 startup Mira Network, Coinbase’s growing dominance highlights “a systemic issue in Ethereum’s staking architecture.”“We’re creating a system where a handful of major players control an outsized portion of network security, undermining the core promise of decentralization,” Sirdesai told Cointelegraph.
Coinbase is the largest custodian for US crypto ETFs and holds ETH on behalf of eight of the nine US spot Ether funds, the exchange said in January. “This type of network consolidation brings with it increased risk of censorship and reduced network resilience,” Temujin Louie, CEO of Wanchain, a blockchain interoperability protocol, told Cointelegraph. For instance, high staking concentrations “represent potential points of regulatory pressure… [and] these large staking entities will likely prioritize regulatory adherence over network censorship resistance when faced with difficult choices,” Sirdesai said.
Meanwhile, new US regulatory guidance allowing banks to act as validators for blockchain networks adds to centralization risks, several crypto executives said.“If too much stake consolidates under regulated entities like Coinbase and US banks, Ethereum will become more like traditional financial systems,” Louie said. Conversely, more institutional validators could actually improve staking concentrations.
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Author / Journalist: Cointelegraph by Alex O’Donnell
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