Diving in: Why are 81% of Ethereum’s Beacon Chain nodes in the U.S. and Europe? |
Most of the nodes that power Ethereum’s blockchain are in the United States and Europe, which has raised many concerns from those who see it as an unhealthy concentration. On its face, this seems like a bad thing for decentralization going forward but there is more to consider than just geographical distribution. Understanding how these regions differ can help us better explain what we’re seeing with Ethereum today and where it might be headed.
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The “when is eth 2.0 coming out” is a question that has been asked many times. The answer to this question can be found in the “Diving in: Why are 81% of Ethereum’s Beacon Chain nodes in the U.S. and Europe?”
Through the use of smart contracts, Ethereum was the first generalist blockchain to promote Decentralize Finance (DeFI). As a result, they’ve built a thriving ecosystem of decentralized applications (dApps) that serve as web interfaces to the blockchain’s smart contracts, with 3,778 dApps and 6,730 smart contracts so far. These dApps have essentially reconstructed the whole financial system — borrowing, lending, market creating, and exchanging – and are now moving on to blockchain gaming metaverses and NFTs.
This monetary revolution, however, took place on shaky ground. With the most developers and dApps, Ethereum has gained DeFi momentum, but its Proof-of-Work base makes it too costly to use.
ETH gas fees on average (image courtesy of ycharts.com)
Ethereum, in contrast to the initial idea of crypto payments and transactions as frictionless and inexpensive, allows for advancement. Approximately 71 percent of customers prefer to pay with a debit or credit card, and for good reason: transactions are easy, secure, quick (from the consumer’s viewpoint – they scan and leave the shop with their purchases), and they’re free. Merchants are charged a fee, which is generally less than 3%.
When compared to standard payment processors, Ethereum transactions are vastly different. The answer, according to Ethereum supporters, is the ETH 2.0 upgrade, which converts Ethereum to a Proof-of-Stake blockchain called the Beacon Chain. As explained in the ETH 2.0 update summary, this will be Ethereum’s new backbone, which will manage all shard chains and validators. Ethereum completed the Altair upgrade at the end of October, putting it one step closer to the Beacon Chain.
What Are the Benefits of the Altair Upgrade?
Following the deployment of the Altair update on October 27, 2021, ETH quickly surpassed its all-time high price of almost $4,500. With expectations high, Ethereum’s Proof-of-Function (PoW) and Proof-of-Stake (PoS) consensus systems work in tandem during this critical transition time.
Altair is the largest Beacon Chain update since December 2020, and it’s a test run to ensure the Ethereum-Beacon Chain merger in 2022 goes smoothly. The following are examples of Altair’s upgrades:
Because light clients have lower computational and bandwidth costs than complete nodes, they can interact with the network more easily.
Inactivity leak quadratic function that is based per validator, rather than globally. Incentive restructure that delivers more efficient bit yield to minimize complexity. The latter is beneficial to validators who have a participation rate of more than 80%.
Validator awards have been updated to resolve a bug.
In principle, these should all lead to an Ethereum 2.0 that is as fast and cost-effective as other layer-1 rival blockchains that have lately gained traction. In the interim, Ethereum will depend on Layer 2 solutions to achieve its goals. Outside of Ethereum’s scalability, though, another issue is arising. Is it truly decentralized?
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The Decentralization of Ethereum is Investigated
While there are competing smart contract systems with low costs and rapid transaction speeds, Ethereum’s key strength is its widespread acceptance and decentralization. Validators are the counterpart of PoW miners on PoS blockchains, and they keep the network running.
A validator is just software that runs on node hardware. The role of a validator is to validate blockchain transactions and provide this information to a node, which will subsequently add it to the blockchain. Ethereum is now hosted by 2843 nodes, the majority of which are located in Northern America and Europe, according to ethernodes.org.
The distribution of Ethereum nodes (Photo credit: ethernodes.org)
The United States has 35.21 percent, Germany has 15.20 percent, China has 6.79 percent, Singapore has 4.89 percent, Finland has 3.87 percent, France has 3.52 percent, Canada has 2.92 percent, and the United Kingdom has 2.85 percent. North America and Europe account for over 80% of Ethereum nodes when combined with other nations.
To emphasize this concentration even further, Ethereum 2.0 nodes on the Beacon Chain are focused even more on the same two continents.
Node distribution for Ethereum 2.0 (Photo credit: NodeWatch.io)
Over a quarter of the 4,688 Beacon Chain nodes are in the United States, accounting for 27.22 percent. The two continents of Europe and North America combined account for 81 percent of node dispersion. The trend is comparable to Bitcoin, which has 13,239 nodes, although there is a greater expansion toward South America and Asia.
Distribution of Bitcoin nodes (Photo credit: BitNodes.io)
Solana, a smart contract competitor to Ethereum, follows the same concentration pattern.
Node distribution in Solana (Photo credit: SolanaBeach.io)
The split between the Global South and the Global North is plainly seen in these photographs. To put it another way, there is a divide between developed and developing countries. Even Ethereum, the world’s most popular smart contract platform with over $100 billion in TVL, is unable to close the gap.
What are the variables that are driving such a concentration of nodes, and are they limiting global crypto adoption?
What Is the Cause of the Global South’s Deficit?
When considered as a technology, blockchain networks are best suited for areas with low population density or limited infrastructure development. This is why Kenya’s M-Pesa proved so effective in bringing financial services to the world’s least-banked areas. These areas currently include South and Central America, where 38% of the population is unbanked, and Africa, where 50% of the population is unbanked.
A simple SMS message on an older phone could be used to transmit money to other M-Pesa accounts, and all that was necessary was cellular network access (meaning, no data). Celo (CELO), a mobile platform that turns phones into virtual banks for both crypto and fiat payments using Celo’s cUSD stablecoins, is a blockchain version of a similar idea.
Is it possible, however, for blockchain technology to go beyond that basic level into the Global South? Regrettably, there are significant challenges to conquer first:
High levels of corruption may make economically developing countries vulnerable. Sub-Saharan Africa scores 32 out of 100 on the Corruption Perceptions Index (CPI), the lowest score in the world. South America, like the rest of the world, has a low CPI score.
There is less ability to integrate new technology into the populace in such settings. Because high levels of corruption harm people’s livelihoods, they are more concerned with meeting fundamental requirements initially.
As a result, the pool of people willing to take on the complexity of blockchain initiatives, including node hosting, is already small.
This is why, in order to get blockchain initiatives off the ground in these areas, outside assistance is required. Specifically, UNICEF and the United Nations Development Programme (UNDP) are among the UN organizations involved (United Nations Development Programme). Both have been awarding cash to blockchain initiatives in underdeveloped nations since 2018.
Furthermore, by trailing behind in blockchain infrastructure, the Global South exposes itself to possible economic penalties, as witnessed in Iran, Libya, Venezuela, and other countries. Can these countries follow Estonia’s lead, which transformed into a developed country with a thriving FinTech industry in less than 30 years?
Only if governments in the Global South prioritize infrastructure development, such as dependable energy and cell coverage, as the foundation for e-Government.
Shane Neagle of The Tokenist contributes a guest piece.
Since 2015, Shane has been a vocal advocate of the decentralized finance movement. He’s authored hundreds of papers on the topic of digital securities, which are the combination of conventional financial securities with distributed ledger technology (DLT). He is still enthralled by the expanding influence of technology on business and daily life.
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