Decentralization is kind of a big deal when it comes to cryptocurrencies. The whole idea behind the creation of cryptocurrencies by Satoshi Nakamoto was to give ownership to the masses and do away with the control that financial institutions and governments have over fiat currencies and other assets. It is this decentralization that has attracted so many investors into cryptocurrencies and continues to appeal to so many more.
Ethereum is a blockchain platform based on the idea of decentralization. However, as has been recently revealed, this may not be completely true for the blockchain. 35 shareholders of ConsenSys AG (CAG), have come together to request for a special audit of a deal that resulted in JPMorgan Chase acquiring an influential stake in two of Ethereum’s flagship products. The 35 former employees represent the majority of Ethereum’s CAG’s shareholders.
What is Consensys?
ConsenSys is a software development company that was founded by Joseph Lubin after co-founding Ethereum. The company is a major player in the crypto space and is valued at over $4.4 billion AUD. It is responsible for developing cryptocurrency-related infrastructure and is especially known for developing infrastructure critical for the Ethereum ecosystem including Metamask, the web 3 Ehtereum wallet. The company’s shareholders mostly consist of employees and now former employees.
35 former employees of the company who make up more than half of the shareholders want the deal that saw fundamental intellectual property, more specifically Infura and MetaMask transferred from CAG to ConsenSys Software Incorporated (CSI) a new entity. The deal, popularly known as Project North Star within CAG, saw JP Morgan get a 10% stake in CSI in exchange for offsetting a $39 million loan to Joseph Lubin, Ethereum billionaire and ConsenSys chief. According to the employees, the transfer of the intellectual property from CAG to CSI was done illegally as the shareholders were not informed about it.
Why it matters
This lawsuit is about much more than the fact that CAG was cheated out of its intellectual property and subsidiaries. It brings to light many failures of the Ethereum blockchain in terms of decentralization. Metamask and Infura are arguably the most critical infrastructure to the blockchain’s ecosystem. Infura for one is the node network that processes about 13 billion code requests every day. It provides developers with a way to connect with Ethereum without the need for running a full node.
Currently, CSI is the single provider that operates Infura which is dependent on Amazon’s cloud servers. This makes Ethereum vulnerable to a single point of failure. Now that JP Morgan owns a significant stake of this infrastructure, they basically own Ethereum.
JPMorgan’s move to get a slice of Ethereum is a reflection of the desire by many financial institutions to get into the crypto space. However, this could be counterproductive for Ethereum as it contradicts the whole philosophy behind the establishment of digital currencies, decentralization. It means major infrastructure that is critical for the Ethereum ecosystem is in the hands of a single entity.