Daily Crypto, Finance, and Tech News Summary – July 11, 2023

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Welcome, and thank you for being part of the MyZucoins community! Dive into some important crypto, finance, and tech news to stay ahead.

Data centers and white house next to each other

US Concentration of Ethereum Nodes Raises Decentralization Concerns

The transition of Ethereum from a proof-of-work to a proof-of-stake network has been widely praised as a positive step. However, recent observations about the location of Ethereum nodes have sparked concerns about the network’s decentralization.

In essence, nodes on the Ethereum blockchain network process transactions, validate them, placing them into “blocks”, hence the term “blockchain”.

It has been revealed that over 50% of Ethereum’s nodes are hosted in data centers in the United States, with more than 50% of these nodes concentrated in a single data center located just 20 minutes away from the US Central Intelligence Agency and the White House.

Although this concentration does not indicate direct US government involvement in Ethereum, it does highlight the lack of decentralization in the network, contrary to participants’ expectations. This exposes the blockchain network to potential risk with smaller points of failure or control.

Note: The number of nodes on the Ether.fi website needs updating, as the CEO of Ether.fi clarified that around 6,800 Ethereum nodes are running, compared to the 5,500 displayed on the website. However, this does not change the distribution of nodes, which remain heavily concentrated in the US.

Becoming a validator on Ethereum requires a significant investment of 32 ETH tokens, posing a high cost barrier to entry for many would-be participants. To address this, liquid staking protocols like Lido Finance and Rocket Pool have gained popularity by allowing users to “pool” their ETH tokens together and become validators even without owning the full required amount. This approach enables users to earn rewards for processing transactions, via fees, without operating a full node themselves.

Liquid staking now comprises more than 37% of the overall staked ETH and has experienced remarkable growth over the past year. It’s here too that the rise of liquid staking reflects the need for greater decentralization in the Ethereum network. These staking pools are now highly concentrated, particularly in the United States and the Lido staking pool itself now handles over $14 billion of staked ETH, accounting for around 30% of the total staked ETH. Read more here.

How the Splitchain Network Fundamentally Differs from Traditional Blockchain Systems in Managing “Truth”

Reports about the location and controlling distribution of Ethereum nodes have sparked concerns about the network’s decentralization. Splitchain, on the other hand approaches the decentralization issue completely differently via its truth-finding process that doesn’t utilize consensus mechanisms like traditional blockchains.

Traditional blockchain networks, such as those used by Bitcoin and Ethereum, rely on a majority (51%) opinion, essentially a voting system, to approve a group of transactions. Splitchain doesn’t use consensus mechanisms to settle or approve transactions.

Instead, using a search process, SplitChain’s peers, such as those using the Zucoins wallet app, validate transactions based on “truths” from both parties involved, directly by themselves, using data found on the caching network. Splitchain’s caching network stores past data that peers have processed, ensuring it’s available when peers need the previous results for the next transaction. The end goal of all this is to make the network more resilient against manipulation, increasing decentralisation, while making transactions faster to settle.

Upsides to SplitChain’s Truth-Finding Process

Security: The truth-finding process is expected to be more secure than consensus mechanisms so long as one “truthful” caching node on the network is findable, even if the majority are lying and making up information. This happens in numerous steps involving cryptographic checks, so we’ll spare the nitty gritty details for now. Essentially, it should make Splitchain more resistant to attacks and censorship.

Decentralization: The truth-finding process is more decentralized than consensus mechanisms because it does not require miners or validator nodes. The aim is to make Splitchain more resistant to skewed incentives that end up pushing control of the network towards a minority. Instead, it should encourage users to more fairly participate in the network.

Efficiency: The truth-finding process is more efficient than Proof of Work (PoW) mechanisms like those found in Bitcoin, because it does not require miners to solve complex mathematical problems. This makes Splitchain more scalable, significantly reduces energy consumption and allows the network to settle more transactions within the same time period.

Overall, Splitchain is a newer kind of transactional network that is aiming to rethink the way we store and transmit data across decentralized networks.

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Rob & Peter