Who controls ethereum you don't see Who's controlling who this is an Important question for eth holders Everywhere and the answers could Determine ethereum's future as well as Its regulatory status in the US and Elsewhere now the fact that these Answers could make or break the second Largest crypto project is why not many People have tried to find them much less Talk about them today however we're Going to summarize a report that did EX Exactly That the report we'll be summarizing Today is titled quote the ethereum Government it was published by Galaxy Digital earlier this month and we'll Leave a link to the full document in the Description make no mistake it is well Worth the read if you have the time and It's written by Christine Kim Galaxy's VP of research now the report begins With Christine asking that pressing Question who governs AKA control Ethereum specifically who decides when And how changes to ethereum are made is It a small group of elite individuals And institutions or a large developer Community what say do eth holders have If any the rest of the report unpacks The answers in detail so in the Introduction Christine underscores the Fact that ethereum is technically the World's largest blockchain as it hosts
Over 4,000 decentralized applications And has over 7,000 active developers and This doesn't even count its layer 2 Ecosystem she also highlights the fact That eth is the second most important Cryptocurrency after BTC but some would Argue that eth is even more important That's because ethereum Powers most of Crypto's onchain ecosystem the stable Coins defi protocols Etc and eth is the Digital oil powering ethereum then Christine points out the elephant in the Room the decisions about ethereum are Made offchain by various individuals and Institutions coordinated by the ethereum Foundation a Swiss nonprofit she also Points out that eth holders have no say In this process and that is a Double-edged sword quote on one hand This ensures that the governance process For pushing code changes to the ethereum Protocol cannot be influenced by large Eth whale holders or exploited by Malicious actors finding loopholes in Governance related smart contracts on The other hand offchain forms of Governance are difficult to audit and Objectively evaluate because processes Are intentionally opaque subjective and Unstructured she then reviews ethereum's Long history of hard Forks a total of 19 Spanning back 8 years now for the sake Of Simplicity you can think of hard Fork As being a major upgrade or change to
Ethereum Christine notes that ethereum Core developers discuss these hard Forks On weekly calls she reiterates that this Report focuses on unpacking exactly what Happens behind the scenes crypto Podast yo yo yo this is the Bro crypto Podcast with me Giga Dick and me CH Maximus we got a special Guest joining us today bro that is right None other than bro Rogan who turns the Bro o Meter all the way up to 11 bro how You doing bro yeah bro bro you have some Seriously awesome takes on the state of Crypto right now right like if you don't Like Pro culture in crypto go cry to Your mom no sadosi was not a female he Was a bro you also said meme coins are The new Financial Paradigm and if you're Not going to at least 50x long on the Most degenerate you can find then You're not a bro you're a hoe bro that Is Punchy bro deal with it Dorothy and Guess what if you're not using the coin Pure deals page you are officially a soy Drinking beta cook loser who's not doing Crypto right bro for real if you're not Taking advantage of the insane trading Fee discounts they have there or the Sign up bonuses of up to $60,000 or the discount on Hardware Wallets then guess what game over bro Bro bro Bro this brings us to the first part of The report the ethereum Improvement
Proposal process ethereum Improvement Proposals AKA eips are well proposals About how to improve ethereum and there Are three types of EIP standards which Require a hard Fork process and Informational which do not now while Anyone can submit an EIP to the Appropriate GitHub repo these eips are Vetted for technical accuracy and Formatting by just five people these Five people have the power to Effectively allow the initial EIP to Proceed and these five people are Appointed by previous EIP editors when They leave if the EIP is a standard EIP Meaning that it requires a hard Fork Then the person proposing it must also Present their proposal to ethereum Clients note that this is specifically For certain types of standard eips but We're keeping it short for the sake of Time and simplicity we'll also keep the Technicals simple as well to that end You can think of ethereum clients as Being nodes on ethereum that ensure the Blockchain is operating correctly there Are nine ethereum clients in total and Like ethereum's core developers they Have meetings every week to discuss eips And give their feedback to the authors To improve their proposals as you can Imagine lots of good eips are proposed And it's ultimately up to ethereum's Nine clients to determine which of them
Gets priority in upcoming hard Forks to Clarify hard forks will often include Multiple Eips Christine notes that 61 standard Eips have been included across Ethereum's 19 Forks getting Hungry in all seriousness Christine Notes that only around 23% of standard Eips specifically core eips have been Approved by ethereum's clients and Subsequently implemented in a hard Fork This ties in to the second part of the Report which is about the actual people Who are involved in ethereum's Governance Christine starts by saying That quote no single user individual or Organization has the power to change the Protocol though it's clear that some Have lots of influence regardless she Argues that everyone in ethereum's Ecosystem contributes to governance even In small ways and then reiterates that No single company controls ethereum now This is significant as it's the Mentality that underlies the sec's Scrutiny of entities in ethereum's Ecosystem such as Consensus so with all those disclaimers Out of the way Christine notes that There are four key cohorts involved in Ethereum's governance the first is the Aforementioned ethereum Foundation which Was created by ethereum's co-founders I'll quickly point out that these
Connections are something the SEC does Not like more about whether eth is a Security in the description moving on Now what's interesting is that Christine Reveals the details of eth's current Supply this is interesting because eth's Initial Supply is arguably more Important here the fact that Christine Omitted this information could be Because she didn't believe it was Important or because she couldn't find It as a fun fact it is surprisingly hard To find eth's Initial Supply and over The years we've come across many Variations of what it looked like here's Just one example the inconsistency in Initial Supply distributions seems to be Because the official distribution is Inconsistent with onchain analysis now What's even more interesting is that Christine admits that the governance Process within the ethereum foundation Isn't entirely clear quote unlike Traditional nonprofits the ethereum Foundation does not have a clear Organizational structure or role now This is fascinating because journalist Laura Shin found that there was a quote Shadow government in the ethereum Foundation while writing her book about Ethereum the cryptops this was a group Of individuals with lots of influence to The point that people were scared to say Their name we'll leave a link to an
Interview with Laura after that book Launched where she discusses this Shadow Government at length the time stamp is At around 35 minutes well worth a watch After this video now what's crazy is That Christine reveals that the number Of people work for the ethereum Foundation is unknown this is why it's Odd that she feels confident saying that The foundation has minimal influence on Ethereum these days it's probably Because it only holds. 3% of eth's Supply never mind the fact that the Ethereum foundation's last financial Report was published in April 2022 and by the way if you're enjoying The video so far be sure to pulverize That like button and subscribe to the Channel and ping that notification Bell So you don't miss the next one Now the second cohort of people involved In ethereum's governance is the Aforementioned ethereum clients and Their teams you'll recall there are nine Clients and Christine provides a Detailed profile for each notably one of These ethereum clients is directly Funded by the ethereum foundation this Is notable because this client named G Accounts for almost 50% of all client Traffic according to ether no.org as Always the devil is in the details Christine notes that nethermind the Second largest ethereum client at 35% of
Client traffic also received a grant From the ethereum foundation to build it Note that the SEC is reportedly probing The ethereum foundation probably nothing Anyways the third cohort of people Involved in ethereum's governance is Ethereum's validator nodes per the Report validator nodes quote have the Agency to implement or reject code Changes that have been made to ethereum Software By client teams in other words accept or Reject ethereum upgrades as some of you Will know validor nodes who reject any Major ethereum upgrades will split off And create their own chain if we Understand correctly ethereum is Designed in such a way that if a Validator tries to continue validating Both chains after this split then they Are progressively penalized a little Later Christine notes that the main Reason why validators wouldn't reject to Code change and create their own chain Is because it would be missing the Liquidity of ethereum namely the stable Coins as founder vitalic buaran himself Pointed out this gives stable coin Issuers huge power over chain splits in Any case Christine then provides this Eye-opening image of the geographical Distribution of ethereum nodes you'll Notice they're heavily concentrated in The US and also in Europe to a lesser
Extent of course this is a consequence Of the fact that most eth is staked Through large third parties as you can See here centralized exchanges like Coinbase and liquid staking protocols Like Lio finance account for over 50% of All eth staked if we understand Correctly Christine is alleging that These large validators have been Influencing ethereum upgrades Prioritizing unstaking after the merge For example now the fourth and final Cohort of people involved in ethereum's Govern governance is obviously the Developers themselves not surprisingly Christine argues that the developers are The most important cohort that's because If they don't build daps then nobody Uses ethereum this gives them Significant influence what's Wild is That she seems to imply that ethereum's Largest projects have the most influence Noting that Unis Swap and optimism were The ones that pushed through a technical Upgrade to ethereum this makes us wonder Whether Unis swap influence is part of Why the SEC is targeting the decks Whatever the case Christine stresses That there is overlap between all four Cohorts she mentioned the ethereum Foundation has developers logically Clients also have developers and you'll Recall the clients are also influenced By the ethereum foundation large
Validators also have developers Christine also notes a fifth cohort and That's the crypto Community especially Eth holders These can socially and financially Pressure the other cohorts for instance Former ethereum core developer and Foundation employee Lane retig revealed In an interview that he had been bribed By large eth holders crypto can be scary Sometimes now this relates to the third Part of the report and that's the forums Aka the places where people discuss Ethereum oddly enough Christine Begins By noting that most ethereum related Forums are in English but that the Ethereum foundation is working to bring In additional languages that aside she Focuses on four forums the first is the Weekly call with ethereum core Developers known as the ethereum all Core developers call or ACD call these Weekly calls are organized by none other Than the ethereum foundation and have Been taking place since ethereum began What's insane is that there was one Person at the ethereum foundation who Organized the ACD calls from 2016 to 2021 in 2021 this person stepped down And their successor has been organizing These calls ever since you can check the Report for the names if you're Interested not trying to call people out By the way anyhow as mentioned earlier
The contents of these calls are mostly Discussions around eips however Christine notes that it's common for Developers to get caught up in ethical And moral discussions around eips or Indeed entirely separate issues it's Easy to forget that crypto is Philosophical at its core now the second Forum where ethereum decisions are Discussed is eth magicians and eth Research so well technically two forums Christine explains that these two forums Are typically where the contents of the ACD calls are planned the former is more General and the latter is more technical Lo and behold both forums are organized By members of the ethereum foundation Eth magicians includes a pseudonymous Developer of ethereum's gu client and Eth research includes ethereum Founders And core developers such as vitalic note That vitalic is also part of the Foundation now the third Forum where Ethereum decisions are discussed is Discord and I'll quickly note that the Coin Bureau has a Discord server of its Own link is in the description anyway Shilling aside Discord is where ethereum Developers coordinate upcoming eips and Ask questions not much more to add there And finally the fourth Forum where Ethereum decisions are discussed is on GitHub now github's primary purpose is Basically to keep a record of all of the
Above the ACD calls EIP related research And EIP implementation progress GitHub Also contains all of ethereum's Open Source Code The Only Thing Worth adding Here is that ethereum developers are Actively discussing migrating all GitHub Content to a decentralized solution due To previous outages on the platform this Wouldn't be out of the ordinary as Developers used to use a platform called Gter before switching to Discord in 2023 Then after going over a few other Entities that had an influence on Ethereum and its developers Christine Provides a detailed breakdown of how Decisions were made for some ethereum Upgrades in the past these include the Dow hack the parity multis exploit and The Constantinople upgrade the details Of these upgrades are too lengthy to Mention here but the key takeaway is That the the governance process was Slightly different for each one Christine summarizes it perfectly quote On rare occasions decisions are made Quickly through the exclusive efforts of Ethereum core developers and shared for Implementation by ethereum node Operators under a quick upgrade Turnaround window other times decisions Are relegated to the broader ethereum Community which often results in delayed Decision-making and contention between Stakeholders Christine presumably
Intends to send signal here that this Means there's no specific group of Individuals or institutions that you can Point to as driving ethereum's Development the funny thing is that she Simultaneously notes that ethereum now Has an eight-stage road map proposed by Well vitalik and speaking of which she Points out that vitalik noted back in 2019 that crypto governance risks being Overrun by quote Ivory Tower Intellectuals he said the solution is to Increase the number of Institutions and Individuals involved in governance to Prevent a concentration of power since That time the number of Institutions and Individuals involved in ethereum's Governance has increased but judging by Recent headlines vitalic is still Understandably concerned about Ethereum's Decentralization at the same time However Christine seems to suggest Ethereum must be nimble she notes that Validators will likely undergo more Frequent upgrades as ethereum attempts To deliver on its ambitious road map Something that ethereum Foundation Affiliated entities seem to be concerned About in plain English ethereum is Getting increasingly complex and this Requires better governance Christine Then issues a stark warning quote there Are increasing pressures from regulators
And law enforcement that also May Influence and become an outsized voice Influencing the design of ethereum to Prevent regulatory capture of the Ethereum protocol it is imperative that Aspects of how ethereum Works become Aifi beyond the ability for any Stakeholder group or entity to change Now this is extremely significant as she Is practically calling on ethereum to Stop trying to evolve its core protocol In order to protect itself from Regulatory capture for reference vitalic Has recently been calling for ethereum To increase and expand its functionality It seems institutional like Galaxy are Pushing back Christine expands on this Warning in the conclusion quote with Ethereum core developers acting as The Gatekeepers ultimately deciding the Changes that are implemented through Upgrades it is likely that the ethereum Protocol will continue to change rather Than aify translation ethereum core Developers need to calm down so that Institutions can feel comfortable with Ethereum Christine then continues quote There is also the concern of regulatory Capture if a technology becomes too Upgradeable as we've seen on a smaller Scale with Finance Focus daps and Dows Now that last comment is also extremely Significant take a second to consider That fewer than one% of Dow token
Holders control more than 90% of voting Power according to a 2022 report by Chainalysis if you've been keeping up With our coverage of crypto regulations You'll know this is a vector of attack This brings me to the big question and That's what all this means for eth well I'll start by saying that the issues Around governance and Regulatory capture We just discussed are long-term problems That will eventually be solved that said Ethereum's continued Innovation could Create more immediate issues related to Governance for starters we have Continued Innovation at the base layer Which risks creating more technical Issues if you've been keeping up with Our ethereum updates you'll know that Ethereum had quite a few bugs after the Merge it's easy to forget that Ethereum's Beacon chain is technically a Brand new blockchain whereas the Original ethereum blockchain was Battle Tested the beacon chain arguably hasn't Been yet fortunately it seems there have Been no major issues besides the Finality bug discovered last May Unfortunately these issues are likely to Become more common as ethereum continues To innovate these technical issues if They arise will require quick thinking On the part of ethereum's decision Makers particularly its developers Although history has shown that ethereum
Developers are agile in responding to Issues it could take longer to do quick Fixes as ethereum becomes ever more Complex in turn this could require the Creation of a more cohesive governance Structure which as Christine noted in The report could be exploited by Regulators to capture ethereum further In the future in the short term the Absence of this governance structure Could make it hard to solve complex Issues quickly then there's ethereum's Ecosystem which is having a greater and Greater influence on its base chain the Concerning entities here are stable coin Issuers and large validators such as Exchanges and liquid staking protocols Both theoretically have the power to Take control of ethereum already in Practice of course they would never do This as trying to do any kind of hostile Take over would do damage to the very Value they're trying to capture but Again this assumes that we're dealing With Crypton native economic actors the Moment governments and Regulators start Getting involved things could get messy Consider a scenario where a regulator Requires stable coin issuers to conduct Kyc on all wallets holding their stable Coin tokens on ethereum or consider a Scenario where the Lio Finance Dow Starts making decisions that affect the Ethereum blockchain directly due to its
Increasingly large eth stake and let's Not forget that Lio Finance discovered a Bug of its own not so long ago All Things Considered though ethereum is Still the largest ecosystem in crypto by A wide margin there are literally Thousands of developers and daps that Are doing everything in their power to Ensure this project succeeds that number Rises to Millions if you add eth holders Into the mix when so much is on the line For so many people the inevitable result Is that the right decisions must be made And history has shown that they Eventually are ethereum has been Incredibly resilient considering Everything that's been built on its Blockchain and eth has rightfully Benefited like every crypto project Ethereum has faced challenges since its Inception unlike most other crypto Projects though it has consistently Proven that it can overcome these Challenges this is precisely why eth is The second largest crypto by market cap And why almost everyone in crypto holds Some of it including yours truly make no Mistake there's no guarantee that eth Will keep this position but so far there Have been no legitimate reasons to worry That it won't as you might have gathered Our only real worry relates to what Regulators like the SEC may have found Out about ethereum in their
Investigations we may never know if the SEC doesn't follow through with its Lawsuits against consensus and Unis swap But Galaxy's report makes it clear that There's a lot more to the ethereum story Than meets the eye this though is the Case with every crypto and that's why we Created this Channel and why you are Watching It and that's all for today's video Folks so if you found it informative be Sure to show that like button who boss In order to let us know if you want to Stay informed about your favorite crypto Projects be sure to subscribe to the Channel and ping that notification Bell And if you want to inform others about Who controls ethereum then share this Video with them as always thank you all For watching and I'll see you in the Next one this is Guy signing off [Music]
