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Morgan Stanley analyst Sheena Shah argued Wednesday that the crypto ecosystem is becoming more centralized, although the underlying blockchains remain decentralized.
That’s partly due to “dependence on running a large portion of the blockchain on Shah wrote in a note to clients.
Example: 65% of ethereum (ETH-USD) nodes are hosted by a cloud provider, with Amazon Web Services accounting for half of them, the note said. And problems can arise if service providers decide to censor certain participants or crypto products, or if servers are down for a long time.
“The cryptocurrency ecosystem has grown in recent years with many applications, codes, services, and companies participating in the underlying decentralized blockchains,” explained.
As part of ether (ETH-USD) centralization problem, 60% of blockchain’s validators are managed by just four companies, Shah pointed out. Note that since ether switched to Proof-of-Stake from Proof-of-Work in mid-September, transactions have been approved by validators, eliminating the need for miners as part of the update. software.
Another reason the crypto world is becoming less and less decentralized is that the ecosystem has developed regulation-friendly, crypto-centric products to attract users, thus it “starts to look more like a centralized banking world,” the note said. TradFi is simultaneously launching crypto products to provide services like custody to their customers. Bank of New York Mellon (BK), for example, recently allowed some of its US customers to hold and transfer bitcoin (BTC-USD) and ether (ETH-USD).
SA Contributor Digital Trends believes that ether is the #1 commodity to keep for the next 10 years.
