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Proof-of-Work Proponents Question Validator Censorship as 59% of Staked Ethereum Is Held by 4 Companies

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Proof-of-Work Proponents Question Validator Censorship as 59% of Staked Ethereum Is Held by 4 Companies

Proof-of-Work Proponents Question Validator Censorship as 59% of Staked Ethereum Is Held by 4 Companies

Prior to The Merge, Ethereum used to have dozens upon dozens of mining pools dedicating hashrate toward the blockchain network. That has all changed and most of the miners transitioned or plan on transitioning to other Ethash compatible coins like ethereum classic, ERGO, and the new fork ETHW. Now Ethereum blocks are verified by validators and at the time of writing, there are 429,278 validators. However, a great deal of the 13.7 million staked ethereum is held by four known providers.

4 Known Providers Hold 59% of the Staked Ethereum Today

Bitcoin.com News reported on Lido possessing 30% of the staked ether four days ago. On September 15, the Twitter account Checkmate, the lead onchain analyst at Glassnode, wrote about the entities currently holding the lion’s share of today’s staked ETH. “We profiled a few more entities,” Checkmate wrote to someone discussing Lido’s holdings. Checkmate said data shows that there’s 13.7 million staked ETH and 10 million ether is held by known providers. That equates to 73% of the staked ETH, and the top four providers hold 8.13 million ETH or 59.3% of the aggregate.

Proof-of-Work Proponents Question Validator Censorship as 59% of Staked Ethereum Is Held by 4 Companies
Glassnode chart shared by the firm’s lead onchain analyst Checkmate.

“4.17M in Lido, 1.92M in Coinbase, 1.14M in Kraken, [and] 0.9M in Binance,” Checkmate said. The tweet shared by the onchain analyst at Glassnode was further discussed by the popular bitcoiner Tuur Demeester, the editor at satoshipapers.org. “44% of ETH is staked by just 2 entities, Lido [and] Coinbase. Add Kraken, and it jumps to 52% of total ETH staked by 3 entities,” Demeester wrote. The editor also mocked a tweet written by Vitalik Buterin which talks about the idea of having average users validate the system.

Proof-of-Work Proponents Question Validator Censorship as 59% of Staked Ethereum Is Held by 4 Companies
Screenshot image shared by satoshipapers.org editor Tuur Demeester.

SEC Chair Gensler Hints at Taking Another Look at Staking Coins, Jack Dorsey Shares Anti-PoS Editorial, Ethereum Proponents Believe People Are Getting Ahead of Themselves

In addition to bitcoiners like Demeester and Checkmate, the U.S. Securities and Exchange Commission chair, Gary Gensler, recently talked about talking about the Howey test and staking coins. The Wall Street Journal (WSJ) reported that Gensler said: “From the coin’s perspective … that’s another indicia that under the Howey test, the investing public is anticipating profits based on the efforts of others.” While the WSJ said Gensler remarked that he wasn’t referring to any cryptocurrency in particular, many crypto enthusiasts assumed the SEC chair was discussing ethereum (ETH) and PoS coins.

BREAKING: Gary Gensler says using of Proof-of-Stake could trigger securities laws.

— Dennis Porter (@Dennis_Porter_) September 15, 2022

In mid-August, Coinbase co-founder and CEO Brian Armstrong was asked if the exchange would censor at the ethereum protocol level with validators. “If regulators ask you to censor at the ethereum protocol level with your validators will you: (A) Comply and censor at [the] protocol level (B) Shut down the staking service and preserve network integrity,” the user asked.

Armstrong responded three days later and said: “It’s a hypothetical we hopefully won’t actually face. But if we did we’d go with (B), I think. Got to focus on the bigger picture. There may be some better option (C) or a legal challenge as well that could help reach a better outcome.”

Proof-of-Work Proponents Question Validator Censorship as 59% of Staked Ethereum Is Held by 4 Companies

A number of people believe that it’s quite possible that known validators could be forced to comply with regulatory policy and censorship. With four centralized entities staking the most ethereum (ETH) today, people have concerns about whether or not validators will be centralized and censor transactions. On September 14, Twitter co-founder Jack Dorsey shared an editorial published on substack.com that criticizes PoS. The substack.com article is written by Scott Sullivan and it claims that “to be a validator is to live every day walking on [eggshells]” and “PoS is a permissioned system.”

Meanwhile, most of the criticism stems from bitcoiners, some of whom are labeled as bitcoin maximalists. Ethereum proponents think the idea is absurd and one supporter noted that he would simply jump to an ETH chain that doesn’t censor transactions. “Guys,” Ryan Adams tweeted, “[the U.S. government] isn’t trying to censor [ethereum] validators right now. Let’s not get ahead of ourselves. But … if they ever do … I’ll be on the fork of Ethereum that doesn’t censor transactions. Simple as that. Layer 0 is our security layer,” Adams added.

Proof-of-Work Proponents Question Validator Censorship as 59% of Staked Ethereum Is Held by 4 Companies
Images shared by Eric Wall on September 16, 2022. The image on the left was originally shared by Banteg, and the image on the right was originally shared by Alex Svanevik.

Bitcoin supporter and blogger, Eric Wall, published a Twitter thread on September 16 that details in the case of Lido staking, “Lido isn’t even a pool.” Wall further remarks in his thread that “Lido can’t decide what blocks anyone of their underlying node operators mine.” Wall does disclose that he’s an LDO investor, as lido dao (LDO) is the native governance token for the Lido Finance project.

“Lido also can’t fire any of their node operators or remove stake from them as it currently stands. Not more than 13.1% of Lido validators are based in a single country. The geographic distribution here is actually quite impressive,” Wall’s Twitter thread adds.

What do you think about the criticism against Ethereum and the validators censoring transactions? Let us know what you think about this subject in the comments section below.

Jamie Redman

Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 6,000 articles for Bitcoin.com News about the disruptive protocols emerging today.

Image Credits: Shutterstock, Pixabay, Wiki Commons, Banteg, Alex Svanevik, Checkmate, Twitter,

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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Grayscale Launches New Investment Product While Bitcoin Trust Crashes to 35%

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Grayscale Launches New Investment Product While Bitcoin Trust Crashes to 35%

Grayscale Investments is offering investors an opportunity to invest in Bitcoin mining hardware in the bear market.

The new investment opportunity, called the Grayscale Digital Infrastructure Opportunities LLC (GDIO), is now open to qualified individual and institutional investors, even as the asset manager allows ETF-related court proceedings to run their course.

Grayscale putting capital to work

Grayscale will use investor capital from the GDIO to buy mining hardware for a minimum of three years. It will use the hardware to mine and subsequently sell bitcoin. Mining is the energy-intensive process undertaken by a computer network to create a new transaction block and verify it. The node in the network that creates the block is known as a miner. A miner is rewarded in bitcoin for his effort, which typically requires large amounts of cheap electricity and computing power.

Part of the proceeds Grayscale will earn from its efforts will be paid out quarterly to GDIO investors.

“Grayscale’s unique position at the center of the crypto ecosystem enables us to create offerings that allow investors to put capital to work through differing market cycles,” stated Michael Sonnenshein, Grayscale’s chief executive.

GDIO represents another way the company has sought to provide investors with exposure to bitcoin without directly holding the asset.

Investors can also purchase shares from its GBTC trust and gain exposure to bitcoin through Grayscale’s legally regulated business in the U.S.

But Grayscale has a problem. Because investors cannot redeem shares in the trust for bitcoin, the price per share has dropped drastically, trading at a discount of 35% to its Net Asset Value. 

At the close of the trading day on Oct. 5, shares were trading at a shade over $12, despite being backed by $18.45 worth of bitcoin.

To mitigate this discount, Grayscale has pursued the conversion of GBTC into a spot bitcoin exchange-traded fund, which has so far been unsuccessful. The U.S. Securities and Exchange Commission denied the company’s latest application in June 2022, prompting Grayscale to pursue legal action against the federal agency. 

Nic Carter of Castle Island Ventures, a venture capital firm focused on early-stage public blockchain startups, said that Grayscale could wind down the ETF:

watching the GBTC discount. looks like ATL at -35%. on top of discounted spot BTC. paths to breaking open the piggy bank: SEC can approve ETF conversion, or Grayscale can wind down the trust themselves if they so choose.

— nic carter (@nic__carter) June 17, 2022

The SEC maintains that spot bitcoin ETFs are prone to underlying market manipulation.

Grayscale undeterred by SEC rejection

Despite consistent resistance from U.S. regulators, Grayscale launched its first European ETF in May 2022, which tracks the Bloomberg Grayscale Future of Finance Index, offering customers exposure to institutions at the crossroads of finance, technology, and cryptocurrencies.

Grayscale raised investors’ eyebrows recently when it announced that it had applied with the SEC to distribute 3 million ETHPoW tokens that were distributed to all Ethereum (ETH) holders after the controversial proof-of-work fork went live. 

At the time, Grayscale said it was seeking the rights to sell the tokens and pay out shareholders. 

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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Colorado is accepting crypto for tax payments — it could be a mess or a shining example

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Colorado is accepting crypto for tax payments —  it could be a mess or a shining example

Colorado is now accepting crypto for tax payments — but if you choose to use that option, it could change the amount you owe…
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