Since it was proposed by Vitalik Buterin in 2013, Ethereum has experienced many major developments. It was initially based on a PoW (Proof of Work) mechanism, and was designed to allow miners to earn rewards by consuming computing power. However, PoW's high energy consumption and transaction speed bottlenecks prompted Ethereum to gradually switch to a Proof-of-Stake (PoS) mechanism and introduced a series of improvements including The Merge, the Shanghai upgrade, and the Cancun upgrade. The core goals of these upgrades are to improve network efficiency, reduce energy consumption and gas costs, and make the Ethereum ecosystem more suitable for decentralized applications.

While these upgrades have made some progress, they have also brought new challenges. In particular, in terms of centralized governance, economic incentive structures, and the difficulty of implementing technology, Ethereum faces a series of structural flaws, which may affect its decentralized concept and long-term development. This article will start from the core flaws of the upgrade and analyze its potential risks to the Ethereum ecosystem.

1. The original purpose of the Ethereum upgrade: efficiency and scalability brought by PoS

Ethereum initially adopted the PoW mechanism. Although this mechanism ensured the security of the network, the associated high energy consumption and scalability bottlenecks gradually became apparent. As users and transaction volume increase, the PoW mechanism's resource consumption and transaction congestion problems are becoming more and more obvious. To improve energy efficiency, reduce transaction costs, and increase network speed, Ethereum completed the “Merge” (The Merge) upgrade in 2022, shifting the consensus mechanism from PoW to PoS.

The PoS mechanism was introduced to replace mining processes that consume computing power by “staking” ETH. Stakers obtain verification rights and rewards by locking ETH in the network, which not only drastically reduces energy consumption, but also mitigates resource competition problems caused by the PoW mechanism to a certain extent. In addition, Ethereum has also adopted various strategies in terms of scalability, including the introduction of Rollup technology and a sharding (sharding) plan to improve transaction processing capabilities by moving part of the calculation and data processing outside the main chain or dividing it into different shards.

However, although these technological upgrades can theoretically bring higher efficiency and lower energy consumption, Ethereum's PoS mechanism and scalability solutions have also caused a series of problems such as centralization and economic structural fragility, which may affect the decentralized nature of the network and have a profound impact on the future development of Ethereum.

II. The hidden dangers of PoS centralization

After the transition from PoW to PoS, Ethereum undertook network verification by staking ETH. The verification weight of a node directly depends on the amount of ETH it has pledged, which means that large players or institutions with large amounts of ETH can have a greater say in network governance. Although this mechanism reduces energy consumption, it also inevitably raises the risk of network centralization.

Currently, there is a huge trend of centralization in the Ethereum staking ecosystem. For example, large staking service providers such as Lido and Coinbase control ETH in large staking pools, leading to the gradual concentration of network governance and verification rights in a small number of nodes. The risk brought about by this is that Ethereum's governance is gradually biased towards oligopoly. This situation not only weakens the participation of ordinary users and small nodes, but may also cause the direction of governance to deviate from the original purpose of decentralization. More seriously, if these few large nodes choose to withdraw in the future for economic, political, or technical reasons, the stability of the entire network will face great challenges.

Furthermore, the centralization of the pledge structure also poses potential security risks. If large staking nodes control too many verification rights, it may cause a “single point of failure” of the Ethereum network. Once attacked or failed, the overall security and reliability of the network will be threatened. This hidden danger makes it difficult for Ethereum to achieve true decentralization under the PoS mechanism.

Also worth noting is that Ethereum developers plan to activate the Pectra upgrade on the mainnet in the first quarter of 2025. The EIP 7251 proposal in this upgrade increases the maximum effective balance of validators from 32 ETH to 2048 ETH, and allows existing validators with a maximum effective balance of 32 ETH to consolidate their stakes. This is expected to drastically reduce the number of validators on Ethereum and exacerbate centralization issues.

III. Economic and safety flaws of the Rollup structure

Another key strategy of Ethereum in terms of scalability in recent years is the use of Rollup technology. Rollup is a technology that processes transactions through hierarchical processing, moving part of the computation and data processing off the main chain to improve transaction speed and processing efficiency. Although Rollup is theoretically effective in mitigating Ethereum's scalability problems, its complex economic structure has brought some new risks.

Rollup's design requires the establishment of a complex set of incentives to ensure the liquidity and security of the network. The current Rollup ecosystem is highly dependent on external pledges and financial support. This dependency makes the entire system highly vulnerable during economic fluctuations. Once the market fluctuates drastically, the liquidity in the Rollup ecosystem may be seriously affected, leading to a decline in user experience and network stability. Rollup's dependency on the main chain also means that when there is a problem with the main Ethereum chain, Rollup's ecosystem will also be impacted by a chain reaction.

Furthermore, Rollup's economic model has not been verified by the long-term market. Many L2 projects based on the Rollup solution, such as OP Mainnet, Arbitrum, Base, Starknet, zksync, and LineA, in addition to poor user experience due to poor interoperability, are also highly consistent with the main chain function.

Previously, the main function of ETH was the settlement layer, and large-scale DeFi settlements all occurred on the main chain, but now a large amount of demand has been diverted to L2. The “parasitic and blood-sucking” of Ethereum's L2 divides Ethereum's liquidity but only provides little value capture to feed back to Ethereum. As a result, Ethereum's liquidity and on-chain transactions have been seriously lost. The ETH main network has collapsed, internal disputes continue, and community consensus has gradually broken down. The data shows that after Dencun, Ethereum's revenue and the amount of ETH supply destroyed decreased significantly. Total revenue is 69% lower than the average for the 150 days before the upgrade; the amount of ETH burned is 84% lower than the average for the 150 days before the upgrade.

In terms of security and stability, the sequencer (sequencer) in Rollup's architecture is the core component of the L2 network node. It bears the heavy responsibility of receiving transaction requests, determining execution order, packaging them in batches and delivering them to L1 smart contracts, and plays an important role in improving transaction processing efficiency and user experience. However, if the sequencer crashes or reports an error before this process is complete, the user's transaction will remain in L2 and will not be completed in L1. It is easy to see from this that this kind of use of a single sequencer may face hidden risks such as transaction delays, crashes, and downtime, and this situation has actually happened.

This centralized sequencer will significantly weaken the Ethereum mainnet's control over L2 at the settlement level, and is prone to risks such as malicious censorship of user transactions, errors, MEV extraction, snatching, traffic fragmentation, and even forced shutdown (such as Linea and Blase directly shut down due to asset theft), which in turn affects the stability and security of the entire Rollup system. In short, this centralized design gives the sequencer too much power and has become the focus of current concerns in the industry.

4. Potential future risks: the trade-off between technical difficulty and decentralization

In the future, Ethereum also plans to further improve network performance through sharding (sharding) technology. However, sharding, as an extension solution that breaks down a network into multiple small fragments, is extremely difficult in technology, and requires data consistency and security between different shards. Successful implementation of sharding involves not only overcoming technical challenges, but also how to balance security and scalability. This technical complexity can cause poor data synchronization between shards, and even cause network fragmentation in extreme cases.

In addition, the combined use of sharding and Rollup makes the governance structure and economic structure of the network more complicated. The distribution of shards and the design of Rollup make data consistency requirements between each shard and Rollup higher, which poses more technical challenges for developers and node validators. If the parallel use of sharding and rollup fails to balance the relationship between decentralization and performance improvement, it may cause a decline in user trust and even a split community.

Overall, in the process of continuously pursuing technological innovation, Ethereum inevitably faces the difficulties of centralization, economic vulnerability, and technical complexity. These issues not only affect the current stage of Ethereum's ecosystem development, but also pose risks for future upgrades.