Ethereum at the crossroads of history: Three simultaneous pressures threaten the future

The widespread approval of spot ETFs has transformed Ethereum from a foreign technology project into a globally significant asset. However, behind this success lie deep underlying flows and structural challenges that few pay attention to. Vitalik Buterin recently publicly addressed at the Devconnect conference three core issues that will directly impact the sustainability of Ethereum as a reliable, neutral infrastructure: the influence of Wall Street institutional capital, community polarization and governance risks, along with technological challenges from quantum computing.

Institutional Capital Reshaping Ethereum’s Economy

The large-scale entry of institutional funds is restructuring Ethereum’s foundation into a new shape. According to the latest data, the total ETH held within institutional financial products (including spot ETFs and DAT treasury ) has exceeded 12.58 million units, accounting for 10.4% of the current total supply. This accumulation carries two profound structural consequences.

First is the narrowing of effective market liquidity. Data from Glassnode shows that the proportion of ETH on centralized exchanges (CEX) has decreased from 29% to 11% over recent periods. As institutions push ETH from high-liquidity venues like CEXs into structures with lower liquidity such as ETFs or DAT, the amount of ETH freely tradable on the market will continue to shrink, increasing price volatility and reducing market efficiency.

Second is the redefinition of ETH’s nature. With the participation of large institutions, ETH is increasingly regarded as a long-term savings asset and a primary collateral vehicle, rather than just a purely technological token. Leaders like VanEck CEO have publicly called ETH a “Wall Street token,” reflecting the deep financialization process of this asset.

Hidden Dangers: Decentralization Masked by Centralization

In the PoS (proof of stake) consensus mechanism, ETH holdings translate into power in staking and governance. Although ETH in ETFs does not directly participate in on-chain staking, the large-scale economic concentration will give these stakeholders significant influence over protocol governance decisions.

First risk: Community polarization. When control is concentrated in a few institutional players like BlackRock, Fidelity, and custodians, the fairness and neutrality of decision-making processes are challenged. While Ethereum outwardly maintains a decentralized appearance, actual power will gradually concentrate into a “small group” of major financial players. This could cause Ethereum’s development to shift away from purely technical advantages toward closer ties with institutional capital.

Furthermore, the business incentives of organizations often prioritize compliance and stability, while developers pursue innovation and anti-censorship. If governance becomes too centralized in the hands of large capital, community decisions may subtly tilt toward maximizing commercial value rather than preserving decentralization principles, leading to the loss of many talented programmers.

Second risk: Physical layer centralization. To meet demands for transaction speed and legal compliance, infrastructure will likely develop toward high-performance nodes, significantly increasing operational costs for independent validators.

Research indicates that Ethereum has experienced serious geographic centralization, with most validators concentrated in North America (especially the East Coast of the US) and Europe, regions with minimal network latency. If staking ETFs are approved, this trend could worsen as institutional validators focus on “minimum latency” locations to maximize staking profits and MEV (max extractable value).

A deeper issue is that ETH from institutions is often staked via custodians, leading to many validators concentrated in data centers under U.S. legal jurisdiction. This creates censorship risks from a legal perspective (such as OFAC compliance). If the foundational layer becomes susceptible to censorship, Ethereum could degrade into a centralized “financial database,” contradicting the core blockchain principle.

Technological Challenges: The Threat from Quantum Future

Behind economic pressures lies a potential technological threat: the advent of quantum computers. Ethereum’s security, like most blockchain networks, relies on ECDSA (elliptic curve digital signature algorithm), protected by the computational difficulty of the discrete logarithm problem on elliptic curves (ECDLP). In classical computing, deriving a private key from a public key is considered computationally infeasible.

However, Shor’s algorithm, developed by Peter Shor in 1994, has changed this equation. It exploits superposition and quantum entanglement to reduce the complexity of solving ECDLP from exponential to polynomial time. If a sufficiently powerful fault-tolerant quantum computer (FTQC) emerges, it could efficiently extract private keys from public keys, forging signatures and controlling assets without authorization.

Predictions about the arrival of the quantum revolution are accelerating. Vitalik Buterin warns that quantum computers could break ECDSA by 2028. According to Metaculus, the timeline for the emergence of FTQC capable of analyzing RSA has been shortened from 2052 to 2034. IBM plans to deliver the first FTQC by 2029.

Ethereum has incorporated Post-Quantum Cryptography (PQC) (post-quantum cryptography) into its long-term roadmap during the Splurge phase, with a flexible testing strategy. Instead of directly deploying on L1, Ethereum will use L2 as a testing ground, avoiding disruption or risk to the base layer.

Candidate PQC algorithms Ethereum is exploring mainly include lattice-based cryptography (Lattice-based), which offers strong quantum resistance, and hash-based cryptography (Hash-based), such as SPHINCS, which can build extendable signature systems via Merkle tree structures.

Ethereum’s advantage lies in its flexible architecture, allowing faster deployment of PQC solutions than Bitcoin, and the ability to integrate these solutions into user experience through mechanisms like account abstraction.

Solutions to Balance Pressures

To mitigate risks from institutional capital, Ethereum must act on multiple levels. Community-wise, increasing governance empowerment for developers is necessary, combined with expanding grant programs via the Ethereum Foundation and platforms like Gitcoin to subsidize open-source contributions.

Technically, Ethereum should encourage organizations to adopt multi-signature + DVT (distributed validator technology) or combine restaking, helping to distribute ETH staking across many independent nodes, satisfying custody needs while enhancing decentralization.

Regarding geographic centralization, Ethereum should implement latency-balancing algorithms into the protocol, lower hardware thresholds through client optimization, and initiate distributed node subsidy programs to reduce North American validators’ dominance.

The Nature of a Race

Looking back, Ethereum’s evolution is essentially a race against potential crises. Facing the “gradual pressure” of quantum computers and the “sugar coating” of Wall Street capital, Ethereum can build new fortifications through quantum-resistant upgrades, combined with governance balancing solutions and hardware-software improvements.

This ongoing struggle between technology and human nature will determine whether Ethereum ultimately becomes the technological backbone of finance for Wall Street giants or a truly public infrastructure of the digital civilization.