Is Ethereum Centralized?

Ethereum is slightly centralized because of its current proof-of-stake mechanism, which could lead to concentration among companies with large mining operations.

Anderson Evie
By Anderson Ezie
Romi Hector
Edited by Romi Hector

Published May 30, 2022.

What Is Ethereum?

Ethereum is an open, decentralized, distributed public network similar to Bitcoin. Unlike Bitcoin, however, Ethereum includes an isolated Turing complete environment for developers to build decentralized applications. The runtime environment or EVM is a part of the network hosted by nodes distributed across the globe. The EVM processes and replicates codes known as smart contracts written in languages such as Solidity, Lisp, and Vyper.

Ethereum allows anyone to participate in block creation on the network by becoming a node. You can also run smart contracts on the Ethereum blockchain without restrictions. The network uses a proof-of-work consensus algorithm known as Ethash. However, a series of upgrades known as the beacon chain is set to move Ethereum to a more decentralized proof-of-stake consensus algorithm.

What Does Centralization Mean in Blockchain?

Blockchain centralization means that a large percentage of the power to validate transactions on a blockchain is concentrated rather than distributed. Although efficient, centralized servers are an easy target for attackers, they exploit the personal data of users of these networks.

Centralized platforms from finance to social media use the data provided by their users to their advantage. They sell user data without sharing any of the gains with the users. They can also track user information at will, often without consent.

In finance, third parties make payments slow by acting as multiple intermediaries breaking the flow of transactions from the sender to the receiver. These redundancies exist as a result of the centralized nature of these platforms.

How Is Ethereum Centralized?

Proof-of-work requires miners to compete in an on-chain event that resembles a lottery to append new blocks to the blockchain. One of the problems with this consensus mechanism is the 51% attack that Satoshi Nakamoto believes will decrease with many honest users on the network.

Even though blockchains like Ethereum and Bitcoin are already enjoying the perks of having popularity and a large userbase, the cost of mining equipment sometimes favors large-scale miners with more computational power. The concentration of mining power amounts to a system that is not effectively decentralized. Hence, blockchains like Ethereum have been accused of being somewhat centralized.

Ethereum wouldn’t have been centralized if it started as the proof-of-stake blockchain proposed in 2011. At the time, developers of the project considered proof-of-stake a bit impractical and opted for a slow evolution from proof-of-work. Ethereum developers have now realized the efficiency of proof-of-stake and are working to build a more inclusive proof-of-stake mechanism with Ethereum 2.0.