Is Ethereum Centralized? A Critique of Blockchain Technology9 min read

Since 2018, we’ve been seeing immense growth and popularity in the use cases of blockchain technology. Many believe that it’s the foundation of Web 3.0 and will change the tech world as we know it. Why is that, you may wonder? Well, the main reason behind the public’s interest in blockchain technology is its promise in delivering a decentralized environment. The idea of one being able to control the data seen by third-party authorities on the internet is the drive needed to make it succeed.

But what if I told you that blockchain, specifically Ethereum, is more centralized than you think? And that its underlying technology requires a lot more than signing up to a Binance account to acquire a decentralized environment. That being said, let’s try to understand what makes Ethereum centralized.

How Does Ethereum Work?

The core concept behind the development of Bitcoin was creating a digital currency that stores value. However, Ethereum was formed under the pretense of creating a blockchain that can be employed in various applications besides storing value. It was founded in the year 2013 by tech mogul Vitalik Buterin, who had a vision for implementing real-world assets within the use cases of blockchain technology.

To achieve that, Ethereum uses Turing complete as its programming language, which allows the building of smart contracts and decentralized apps within its protocol. Similar to Bitcoin, it achieves consensus through a Proof-of-Work algorithm. However, due to the poor dynamics of PoW, Ethereum is considered a relatively slow protocol. Where it can only conduct a maximum of 15 transactions per second. The PoW algorithm not only limits the scalability of Ethereum but also consumes large amounts of electricity.

Nonetheless, Ethereum claims to have achieved decentralization with the help of the PoW consensus. It is used to confirm and record the transactions on the blockchain. It does so by having network participants, called miners, compete against each other to be the first node that solves the complex computations required for a transaction to be deemed as complete. In return, rewards will be distributed to the miners who validate the transactions.

Is Ethereum Really Decentralized?

Founder and now former CEO of Signal, Moxie Marlinspike, recently shared his concerns regarding the underlying technology of web3. He believes that in a world filled with innovation, blockchain technology simply wouldn’t keep up. His first argument was that people don’t want to run their own servers. We live in a world of smartphones and smart cars, where everything is available to you at a click of a button.

Nowadays, people would much rather send an email using their iPhone. Instead of operating and maintaining a mail server. However, blockchain technology is a network of peers. Meaning that it’s a network of just servers and no clients. So, if you want to interact with a certain blockchain, you can’t do so using just your smartphone or PC.

“When people talk about blockchains, they talk about distributed trust, leaderless consensus, and all the mechanics of how that works, but often gloss over the reality that clients ultimately can’t participate in those mechanics. All the network diagrams are of servers, the trust model is between servers, everything is about servers. Blockchains are designed to be a network of peers, but not designed such that it’s really possible for your mobile device or your browser to be one of those peers.”

Moxie, “My first impressions of web3”

How To Interact With Ethereum?

This takes us to the next point. In a world where the vast majority are clients. How can one interact with a blockchain without operating a server? Well, to interact with Ethereum, you’ll need API access to one of its nodes. According to Moxie, almost all dApps use either Infura or Alchemy to interact with a blockchain.

These companies sell API access to an Ethereum node along with enhanced APIs they’ve built on top of Ethereum. Therefore, if you’re using an Ethereum wallet and would like to make a transaction, the application will just be sending calls to the nodes running remotely on the Infura server. So, technically speaking, you cannot directly interact with Ethereum. Instead, you would have to blindly trust the responses provided by these two organizations.

“Imagine if every time you interacted with a website in Chrome, your request first went to Google before being routed to the destination and back. That’s the situation with ethereum today. All write traffic is obviously already public on the blockchain, but these companies also have visibility into almost all read requests from almost all users in almost all dApps.”

Moxie, “My first impressions of web3”

Web 3.0 is supposed to provide a solution for decentralizing user activity online. But if every time I interact with Ethereum, the most widely used blockchain, I’m supposed to trust that companies like Alchemy and Infura are working for my benefit. Then, this seems to defeat the whole purpose of web3. And since millions of dollars worth of digital assets are at stake, I don’t believe this to be the best privacy condition.

Where Are NFTs Stored?

is Ethereum centralized?
NFT

If you’re wondering why you’re assets are at stake, this brings us to the next point. While reading Moxie’s blog post, I was surprised to learn that most NFTs minted on Ethereum aren’t necessarily stored on-chain. Given the standard of Ethereum’s underlying technology, that would be crazy expensive. So for most tokens, you’ll just find a URL code that only points to the data stored on a server running somewhere. This would’ve been somewhat acceptable if there is a hash commitment for the data stored on the URL. However, what concerned me most is the fact that there isn’t.

And this is worrying because nothing is specifying what the NFT is supposed to look like. It could appear as one thing on OpenSea but appear as something else once stored in your wallet. And if the servers run by these platforms were ever compromised, there’s no insurance that the NFT’s metadata won’t be manipulated. Because there isn’t a suitable verification method to confirm the data in the first place.

“Anyone with access to that machine, anyone who buys that domain name in the future, or anyone who compromises that machine can change the image, title, description, etc for the NFT to whatever they’d like at any time (regardless of whether or not they “own” the token). There’s nothing in the NFT spec that tells you what the image “should” be, or even allows you to confirm whether something is the “correct” image.”

Moxie, “My first impressions of web3”

Moxie’s NFT Expirement:

To show the implications of the current NFT space, Moxie created an NFT using the Ethereum blockchain. Since the webserver can choose to display different images based on a user’s IP, the NFT will shift based on where you’re viewing it from.

For instance, this is how Moxie’s NFT appeared on the OpenSea platform:

is Ethereum centralized?

Moxie’s NFT on OpenSea

And this is how it appeared on the Rarible platform:

is Ethereum centralized?

Same NFT on Rarible

But this…this is how it would appear if you bought it and stored it in your crypto wallet:

is Ethereum centralized?

Same NFT in a crypto wallet

Considering that some NFTs are worth hundreds of thousands of dollars, and some are even worth millions. The fact that this is possible is extremely worrying. Imagine accessing your crypto wallet one day, and this is what all your NFTs look like!

However, nowhere on OpenSea’s terms and services did it mention that this is a violation. Yet, it was taken down from its platform just a few days later. Not only that but it also got deleted from Moxie’s own crypto wallet! And that’s what shocked me the most. If the NFT was already in his wallet, then he technically “owns” it. So, how can it disappear without any warning? This just proves that even though you’re the sole owner of your wallet’s private keys, it does not mean that your digital assets are “decentralized.” It just means your wallet isn’t doing much besides trusting the responses of these client APIs.

Will Ethereum Become Less Centralized?

Vitalik Buterin, CEO of Ethereum, failed to provide a current solution to the deficiencies facing Ethereum today. He did potentially agree that operating Ethereum nodes to acquire decentralization is not feasible for most users; that’s why Ethereum platforms tend to be more centralized. He also didn’t deny that the only way to interact with Ethereum today is by using a Binance account and asking API clients to identify the state of the blockchain.

In his response to Moxie, Buterin did mention his future plans for overcoming Ethereum’s deficiencies. However, they rely on the blockchain’s shift to a Proof-of-Stake consensus algorithm. Although that may be beneficial for overcoming Ethereum’s current issues with scalability. I believe that this will only make Ethereum more centralized. Since the PoS model is already receiving backlash for creating a centralized environment within blockchains. Nonetheless, Buterin hopes that the shift to the PoS consensus will make it easier to tackle the question “is Ethereum centralized?”

“As for my theory about “why this hasn’t happened yet”, I would say a lot of it comes down to limited technical resources and funding. It’s easier to build things the lazy centralized way, and it takes serious effort to “do it right”. The Ethereum ecosystem did not have that much resources up until ~4 years ago. Of course, ~4 years ago, the ecosystem did start to have a lot of resources, but new projects are slow to ramp up, and the centralized workarounds have had years of head start.”

Vitalik Buterin, in his response to Moxie.

Final Thoughts

I believe that the initial factor behind the public’s interest in blockchain technology was their desire in acquiring decentralization. However, many could care less about whether Ethereum is centralized or not. Since most people entering the blockchain space today are only seizing the hype surrounding cryptocurrencies and NFTs to earn some quick cash. Nonetheless, although Ethereum is unable to provide a fully decentralized environment, I still believe that the introduction of blockchains and smart contracts did the world a favor.