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Ethereum Chinese Control: More Fuel for ETH Centralization Concerns

Last Updated November 6, 2023 4:15 PM
Josh Adams
Last Updated November 6, 2023 4:15 PM
Key Takeaways
  • Ethereum is currently the second most popular blockchain.
  • Its decentralization has been a persistent concern since it became Proof-of-stake.
  • Now, a new post on X has raised new concerns about links to China.

A recent X post  from cybersleuth TruthLabs sparked fresh concerns around the level of Chinese influence and control in the Ethereum ecosystem. The investigator highlighted the deep involvement of entities affiliated to the Chinese Communist Party (CCP) in Ethereum’s genesis, mining network, and protocol development.

With Ethereum having transitioned to a proof-of-stake consensus model, the spotlight is back on the token distribution. The investigator argues that the outsized control of tokens by Chinese entities poses a severe threat to Ethereum’s decentralization credentials. Let’s analyze the cybersleuth’s claims to understand the implications for Ethereum.

Ethereum’s China Links

TruthLabs points out that Chinese conglomerate Wanxiang group was an early backer  of Ethereum. The group purchased $500,000 worth of ETH from Vitalik Buterin in 2015 and helped him set up the network’s original wallets

That donation was later converted to 416,000 ETH tokens. Since then, there has never been any explanation of what Wanxiang received in return for this generous support.

Vitalik was out of cash, and he found it by selling ETH’s decentralized future to the CCP,” said TruthLabs.

Wanxiang Group  was founded in 1969 by Lu Guanqiu as an agricultural machinery company in China. It has grown into one of China’s largest non-state-owned companies with over $30 billion in revenue.

Wanxiang Raising Concerns

Wanxiang entered the US market in 1994 and now has over 5,000 employees across the country. More recently, Wanxiang has shown strong interest in blockchain and crypto, establishing Wanxiang Blockchain Labs  in 2017.

Its deep ties with the CCP raise concerns that the Chinese government may be covertly running Ethereum nodes despite the network’s pseudonymous structure. Beyond holding large chunks of ETH, Chinese mining entities are also allegedly  controlling over 80% of Ethereum’s mining power.

While the shift to proof-of-stake limits the influence miners can exert, critics argue that the excessive ETH hoarded by Chinese players still poses a threat. According to TruthLabs, entities linked to the CCP may hold up to 66% of all ETH in circulation. Although, the account has qualified that statement by saying it is a “complete guess.” 

If true, this enormous, opaque concentration of ETH in wallets associated with the Chinese regime increases the risk of a centralized attack on the network. It also undermines Ethereum’s credibility as a decentralized ecosystem.

As TruthLabs has pointed out on multiple occasions, Ethereum’s China links are not breaking news. On top of early Chinese investment, Buterin also appeared preoccupied with learning Chinese as early as January 2014, according to Laura Shin’s book The Cryptopians—the period shortly before Chinese backers came on board.

Furthermore, Buterin became the chief scientist of Wanxiang Blockchain Labs, a subsidiary, in the latter half of 2015. A 2016 Facebook post  identified Buterin as a co-founder of WBL, alongside Xiao and Bo Shen, co-founders of the Bitshares decentralized exchange.

Transparency Needed To Avoid Centralization Risks

Ethereum has firmly established itself as the leading smart contract platform, with an impressive array of DeFi and NFT projects built on it. However, for understandable reasons, lingering doubts remain around just how decentralized its network really is.

The concentration of nodes is an issue, as Buterin himself acknowledges. Transparency around the top ETH wallets is even more critical in light of the transition to proof-of-stake. A few unknown whales potentially hold enough ETH to sway votes or even attack the network.

While Ethereum downplays its ties to China today, evidence shows  deep involvement of Chinese entities, including state-linked ones, during its early days. 

However, greater transparency on who the major ETH holders are could go a long way in reassuring users. Any blockchain touting decentralization credentials needs to identify and mitigate centralization risks proactively. For Ethereum, providing clarity on its relationship with Chinese entities is an important first step.

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