โ๏ธWEB3 IS CAPTURED
CENTRALIZATION IN WEB3
With the publishing of Satoshi Nakamotoโs whitepaper on Bitcoin, the Web3 movement was born, promising to provide a decentralized monetary system where any two parties could transact freely. And while Bitcoin has generally been a huge success, the cryptocurrency industry has not fulfilled its potential due to its dependence on the existing internet and Web2 infrastructure, as well as to the centralization intrinsic in some of the protocols. Ironically, the Ethereum Name Service (ENS) recently encountered a problem renewing its website address due to the arrest of one of the ENS founders.(11) While there is no verifiable way to know how much of the Web3 infrastructure is hosted on hyperscalers such as AWS and Azure, itโs certainly a large percentage, putting these nodes at risk in case of such regulation.
Mining has become highly centralized because it requires specialized knowledge, low-cost electricity, and state-of-the-art hardware. The centralizing function is built into proof-of-work. Firstly, only people who are relatively rich can afford mining equipment. Secondly, as miners improved their efficiency, they received increased rewards, which they used to buy more expertise and equipment, growing their power. The result is that today 91% of mining power is in just eight countries in the world, with 35% in the United States.[i] Changes in regulation in one or more of these countries could dramatically impact the industry as a whole.
The Tornado Cash regulations in the United States have shown just how much of a threat it is to have this level of centralization: in October 2022, more than 51% of the validation nodes refused to process Tornado Cash transactions, officially making Ethereum a censored Layer 1 protocol.
[i] These Are the Worldโs Top Bitcoin Mining Countries, Globely, December 2021. https://globelynews.com/world/world-top-bitcoin-crypto-mining-countries/
Last updated