The Ethereum system upgrade known as the Merge was executed about two weeks ago, and while things have been running smoothly, not everyone is impressed by the upgrade.
Cardano founder and CEO Charles Hoskinson is among them, telling TechCrunch he didn’t expect Ethereum’s design of proof-of-stake (PoS) to be “as rough as it is.”
Prior to the Merge, some crypto community members raised concerns about the PoS method, noting it felt more centralized than decentralized given that four major crypto entities control over half of all staked ETH.
“About 42% of the blocks after the Merge are held by two actors [Lido and Coinbase] and they’re indefinitely locked in proof of stake,” Hoskinson said.
Earlier this month, Hoskinson tweeted, “Ethereum is becoming the Hotel California of Crypto.” He said he still feels that the second-largest cryptocurrency by market cap is like the hotel in the classic Eagles song.
“Ethereum has become the Hotel California of cryptocurrency. You can check in but you can’t check out and that’s just nuts because Cardano doesn’t have that,” Hoskinson said, nodding to his own blockchain. “About 74% of Cardano is staked but it’s liquid — you can move it any time you want. Our consensus method doesn’t require locking.”
In the PoS model, validators can stake their tokens to create their own validator nodes, but their coins are locked up while they hold a stake — often for an extended period of time.
Since the Merge, Ethereum’s price has dropped nearly 18% from roughly $1,600 to around $1,315 at the time of publication, according to CoinMarketCap data. While some claimed the Merge was already priced in, others said it was “overhyped” and resulted in a price drop, TechCrunch previously reported.
“I think the Ethereum community is in for a rough time,” Hoskinson said. “A lot of the scalability, performance improvements, cost reduction and usability they were promised is not going to happen for a lot longer — at least multiple years.”
The Merge upgraded Ethereum’s system so that it uses 99.9% less energy, but this leaves the Ethereum mining community in the dust. Miners, though, had ample warning to prepare for the Merge and migrate their smart contracts to a PoS system.
But Hoskinson argued they shouldn’t have to: When blockchains are updated, they should add capabilities without taking away already established ones, he said.
“It’s like backward compatibility with Microsoft Windows, where older versions still work even as the system is upgraded to newer versions,” Hoskinson said. “So if you wrote a smart contract under the old model, it should still work.”
That’s not the case with the Merge.
“With Etheruem, they ‘fired’ people — they got rid of all the miners, and whenever they revise their smart contract model, they may break functionality,” he said. “Some of the [proof-of-work] smart contracts no longer work. That felt like a violation to me of the principles of Bitcoin and the crypto space.”
“Since the beginning, you could always verify and always use [old content]. It’s kind of crazy to me that maybe two years from now, the stuff developers built is broken and they have no say or control over that.”
Separately, by having so much ETH locked and staked, it could “introduce a lot more volatility to ETH because the amount of ETH trading is going to get shallower and shallower,” Hoskinson said.
“So you get big price spikes and big price declines because only a small amount of ETH is on the market at a given time,” he added. “That’s a problem.”