Ethereum's attempt to "merge" to Proof of Stake will end up being a monumental blunder in the history of crypto. Welcome to Federal Reserve Part II. Meet the new boss, same as the old boss.
Bitcoin As Pristine Collateral
Can't Compete On POW, So Throw In Towel And Switch to Proof of Stake?
Consider thinking this through from a higher level of context outside of the speculation over the day by day or minute by minute price of Ethereum. If Proof of Stake was so amazing and the best choice for what Ethereum wanted to accomplish, then why didn't Ether launch on POS? If Ether could beat Bitcoin on POW, then why would it even consider POS?
Merge Does Not Solve Gas Fees Issue
The Ethereum Foundation just recently clarified that the merge will not reduce gas fees. An entire ecosystem of copycat cult chains emerged to piggyback on Ether while lowering fees, and competitive Layer 1 protocols like Tezos have proven emphatically that they offer consistently lower fees. So, how does Ethereum solve the issue of high gas fees and onboard millions of new "average Joe" users?
Users Suffer While Holders and Stakers Gain
Under the Merge, miners go away and become in effect a combination of holders and validators. These two groups are the new "miners" essentially. These groups will enjoy the benefits of earning new coins while the small user will not if they do not stake on their own. Users dilute themselves via burn while large holders and validators gain.
How Much Do You Need To Stake On Your Own?
32 ETH. The chart below, courtesy of BitcoinMagazine.com and Glassnode, clearly shows how the leading service providers offering Ether staking control the vast majority of the staking share. America is arguably the "wealthiest nation" and in the main target demographics for crypto the median level of savings is under $5,000. How many Average Joes across the globe can put up 32 ETH to stake and have the technical savvy and wherewithal to execute and monitor the operations? Ethereum POS centralizes Ether even more and consolidates power with VC funded and Wall Street backed private enterprises beholden to government regulation and control. Meet the new boss, same as the old boss.
Just As Bitcoin and POW Swats Back ESG Climate Zealots, Ethereum Moves to Proof of Stake
Climate Change Zealots for years have screamed from the rooftops about how Bitcoin and POS in general will boil the oceans and use up the entire planet's electricity, blah, blah, blah. Finally, there seems to be more intellectual awareness and acceptance of the fact that Bitcoin mining can and will help the environment and many service providers are already reducing harmful impacts of energy production by converting waste into Bitcoin. Ethereum, much like Senator Karen (Warren - MA Democrat), appears to be again a day late and a dollar short and in the wrong place at the wrong time.
Coinbase and Lido Muscle Out The Little Guy
OFAC within the United States Treasury Department recently sanctioned crypto mixer and open source software protocol Tornado Cash. Coinbase, and others such as Lido, have some choices to make. It can refuse to censor and return the staked Ether to users. It can agree to censor Ether transactions as directed by OFAC. If it chooses the first option of returning staked Ether, there is a very large obstacle in the way. Emperor Buterin and the devs coded in a lock on staked Ether that could last beyond the advertised 6-12 months post-merge. If it agrees to censor, the second option, Emperor Buterin has made it clear they will "slash" the Ether of those that do. It's right in the Coinbase Terms of Service folks . . . . . . if a slash occurs users will lose their Ether rewards and perhaps more. Who loses? The average individual user.
Coinbase CEO Armstrong Concedes Coinbase Will Do What OFAC Tells It To Do
Coinbase CEO Brian Armstrong recently made it clear on Twitter that his firm will follow the law but that it also would likely opt to return Ether to users and preserve the integrity of the network protocol at the base layer. Does not appear it is even possible to return the staked Ether that is locked in for months to come. Infura is the service provider for the largest Ether oriented wallet Metamask. They also indicated they will comply with all OFAC demands. Ethereum is lodged between a rock and a hard place to say the least.
So what is really going on here? Janet Yellen just called Checkmate on Ethereum thus forcing it to truly become co-opted almost entirely by government forces and large, deeply connected private enterprises such as BlackRock. Services that enable Eth staking for the little guy can either censor Eth thus eliminating the very premise of core crypto ethos or eliminate staking services that let the little guy get in the game. The result will be Ether even more highly centralized with the average user cast aside.
Perhaps that BlackRock deal with Coinbase over Bitcoin was part of a larger deal. Hey Brian, take the BlackRock gravy train by milking fees from the massive influx of institutional interest in Bitcoin and custody services provided by Bitcoin, but step aside from Ether staking so we (meaning the government and powerful special interests) can own and control Ether to use it as we see fit.
We can only wonder how this connects to CBDCs and the recent Executive Order regarding moving forward with CBDCs in America. Are they taking over Ether to offer vouchers that expire or cancel based on the recipients behavior and social credit scores? Time will tell.
"a tempest must be
true to its nature"