Research: Ethereum is neither decentralized nor deflationary

2022-8-16 08:00

Ethereum is the foundation of the decentralized finance ecosystem and is automatically categorized as a decentralized network. On paper, Ethereum is a decentralized and democratic network based on a deflationary currency.

In reality, it’s neither decentralized nor deflationary.

Defying deflation

In September 2021, Ethereum’s London hard fork introduced EIP-1559, an upgrade set to drastically change how the network worked. The upgrade would enable the network to burn a portion of the gas fees paid by users, permanently reducing the supply of ETH. The constantly reducing supply of ETH was expected to exceed the daily rewards paid to miners, turning ETH into a deflationary currency.

However, the rate of burning ETH never outpaced the rate of minting ETH, as indicated in the graph below.

Graph showing the rate of burning ETH and the rate of minting ETH (Source: Glassnode)

A decreasing amount of activity on Ethereum is the biggest factor that has prevented the burn rate from overtaking the mint rate. For Ethereum to become a deflationary currency, the amount of ETH burned in gas fees would need to overtake the amount of ETH minted to be distributed as block rewards.

In the past year, an average of 13,000 ETH was distributed as block rewards daily. In order to burn over 13,000 ETH in gas fees, the Ethereum network would need to see an average base gas price of around 130 gwei.

Graph showing the projected supply peak for Ethereum and the required base gas price to achieve a fee burn of over 13,000 ETH (Source: Ultrasound Money)

However, since the beginning of the year, the average gas price on Ethereum rarely surpassed 130 gwei. According to data from YCharts, outside of the two peaks recorded in May, gas prices remained below 60 gwei since April. Since the beginning of July, the average price remained below 20 gwei.

Graph showing the average gas price on Ethereum in 2022 (Source: Glassnode)

The rising price of Ethereum, which keeps defying the general market trend, could be one of the factors decreasing activity on the network. Rising prices are, in turn, a direct result of increased speculation surrounding Ethereum’s upcoming merge. As previously covered by CryptoSlate, the increased amount of speculation is evident in the derivatives market, where the open interest on ETH options contracts surpassed the open interest on BTC for the first time ever.

Resisting decentralization

When it comes to decentralization, Ethereum is in even more trouble.

According to data from Glassnode, over 85% of Ethereum’s supply is held by entities with 100 ETH or more. Around 30% of its supply lies in the hands of entities with over 100,000 ETH.

Graph showing ETH’s supply distribution (Source: Glassnode)

Ethereum’s upcoming switch to a proof-of-stake (PoS) network raises even further questions. As the future PoS network will require validators to stake a minimum of 32 ETH, it effectively removed small players from securing the network. Ethereum’s Beacon Chain already has a set of validators that illustrate how the network will look following the merge.

The majority of validators on the Beacon Chain are large entities, ranging from established exchanges to newly founded staking providers with large ETH holdings. A large portion of Ethereum’s validators are legal entities registered in the U.S. and the E.U. and, as such, are subject to each region’s regulations.

Chart showing the Beacon Chain depositors and the size of their stake (Source: @TheEylon) The State of Play: Pre-Merge

Just under 69% of the total amount staked on the Beacon Chain is staked by just 11 providers. A total of 60% of the staked supply is staked by four providers, while a single provider — Lido — accounts for 31% of the staked supply.

In an unburdened bull market, this amount of centralization tends to go unnoticed. However, a turbulent market further shaken by macro uncertainties reveals all of these flaws.

The controversy surrounding the sanctioning of Tornado Cash and other decentralized privacy services has caused many to believe that governments could pressure Ethereum’s validators to become sanctioners themselves.

The post Research: Ethereum is neither decentralized nor deflationary appeared first on CryptoSlate.

Similar to Notcoin - Blum - Airdrops In 2024

origin »

Decentralized Machine Learning (DML) на Currencies.ru

$ 0 (+0.00%)
Объем 24H $0
Изменеия 24h: 0.00 %, 7d: 0.00 %
Cегодня L: $0 - H: $0
Капитализация $0 Rank 99999
Цена в час новости $ 0.0009581 (-100%)

decentralized ethereum research neither deflationary nor network

decentralized ethereum → Результатов: 126


AIDUS ICO

The AIDUS Global D-Fund Platform is a decentralized fund market established upon the ETHEREUM network to serve as a professional asset management platform in which global investors and asset management companies are able to use Blockchain technologies and SMART Contracts to safely and transparently create and settle into P2P (Peer-to-Peer) fund agreements.

2018-11-28 14:34


Фото:

A Bug Making Ethereum Transactions on Exchanges Vulnerable Has Been Fixed

A bug centering around a new Ethereum token, GasToken, which was enabling abuse on cryptocurrency exchanges, appears to have been resolved. The details are provided in a report originally published on November 13, 2018, that discussed how the bug was exploited by attackers, and what digital platforms could do if they wished to protect their hot wallet funds.

2018-11-22 00:34


Ethereum’s (ETH) Blockchain Scaling Issues Look for Resolution Thanks to Upcoming ‘Serenity’ Upgrade

Even though Ethereum has been around since 2015, the decentralized, open-source platform has faced a host of issues related to its transaction throughput capacity in recent times. This is primarily because, since 2016, Ethers’ native ecosystem has witnessed an unprecedented influx of active users and daily transactions— thus effectively exposing the limitations of Ethereum’s Proof […]

2018-11-13 19:54


Burner Wallet Launches as Creator Says Ethereum Network Will Contribute to Emerging Markets

In a Medium Post titled, “Ethereum in Emerging Economies,” written by Burner Wallet creator, Austin Thomas Griffith, the overall goal of inducing mainstream adoption of Ethereum was emphasized. By the looks of it, Griffith argues that this can be done with decentralized apps (DApps) and notes how this newly launched Burner Wallet can make that […]

2018-11-12 01:37


Фото:

Tron’s (TRX) Decentralized Exchange is Now Live on TronScan

Back in late September, Marcus Zhao, of Tron’s Public Chain Division, informed the TRON (TRX) community and the crypto-verse, on the progress of the project and what the future held. In the update, Marcus mentioned that after the activation of the Tron Virtual Machine, the team at the Foundation would follow through on activating a […] The post Tron’s (TRX) Decentralized Exchange is Now Live on TronScan appeared first on Ethereum World News.

2018-11-10 11:22