Ethereum at a Crossroads: Quantum Threat Approaches, Dual Squeeze from Wall Street Capital

#ethereum news

MarsBitNews

2025-11-22 14:26:23

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Author: J.A.E, PANews

With the frequent approvals and large-scale implementations of spot ETFs, Ethereum seems to have made a stunning transformation from a “geek experiment” to a “global asset.” However, under the spotlight of the cryptocurrency market, this largest smart contract platform in the industry is currently at a historical crossroads.

Behind the prosperity, there are undercurrents. Recently, Ethereum co-founder Vitalik Buterin warned at the Devconnect conference that Ethereum is currently facing three major risks: the threat of quantum computing, increasing control from Wall Street, and governance fairness. These three pressures will also test Ethereum's long-term sustainability and resilience as a trusted neutral infrastructure.

Technological quantum threats are at a high point, and anti-quantum upgrades have been included in the roadmap.

Beyond the impossible triangle of blockchain, another layer of deeper risk is approaching: cryptographic security.

The most destructive risk facing Ethereum comes from the disruption of modern cryptography by quantum computing. This technological threat has the characteristics of being sudden and nonlinear; once a critical point is breached, all defenses will be shattered in an instant.

Ethereum's account security, like that of the vast majority of blockchain networks, is based on the Elliptic Curve Digital Signature Algorithm (ECDSA). It relies on the computational difficulty of solving the Elliptic Curve Discrete Logarithm Problem (ECDLP) to achieve security. In the classical model, deriving the private key from the public key requires exponential time, which is considered computationally infeasible.

However, this assumption is becoming increasingly precarious in the face of the rapid development of quantum computing. The Shor algorithm, developed by Peter Shor in 1994, poses a deadly threat to cryptographic systems based on ECDLP. The Shor algorithm leverages the properties of quantum superposition and quantum entanglement to reduce the computational complexity of ECDLP from exponential difficulty under traditional models to polynomial time. This is regarded as “efficient” or “manageable” computation time, as the time grows relatively controllable with increasing input size. Compared to exponential time, polynomial time algorithms can handle larger scale problems in practice.

This means that if a fault-tolerant quantum computer (FTQC) with sufficient computing power is developed, it will be able to efficiently derive a user's private key from the exposed public key (which is usually exposed on the chain when a user initiates a transaction), thereby forging digital signatures and gaining unauthorized control and theft of user funds. This risk fundamentally undermines the ownership of crypto assets and forces the Ethereum ecosystem to complete a large-scale cryptographic migration before the arrival of quantum advantage.

Vitalik Buterin warned at Devconnect that quantum computers may be capable of breaking elliptic curve cryptography by 2028, and the community should prepare in advance.

The industry's predictions for Quantum Advantage Day are also accelerating. According to Metaculus, the arrival of quantum computers with RSA digital decomposition capabilities has been advanced from 2052 to 2034. IBM plans to deliver its first FTQC in 2029.

In the face of quantum threats, Ethereum has included PQC (Post-Quantum Cryptography) as one of the key goals in the Splurge phase of its long-term roadmap.

The preventive strategy adopted by Ethereum is proactive and flexible.

Ethereum will treat L2 as a testing sandbox. Quantum-resistant encryption algorithms will first trial on L2 to assess their performance and security, while avoiding disruption or risk to L1. This layered upgrade strategy will allow the network to cautiously prevent evolving technological threats.

In terms of candidate algorithms, Ethereum is also exploring various PQC schemes, mainly including:

Lattice-based cryptography: This algorithm is considered to have strong mathematical resistance to quantum attacks.

Hash-based cryptography: such as SPHINCS and its component HORST, the latter can construct a scalable and post-quantum secure signature system through a Merkle tree structure.

This call for L2 solutions provides Ethereum with a flexibility advantage. Compared to Bitcoin, which has a design philosophy that emphasizes immutability with a rigid protocol, Ethereum's structured design allows for a quicker iteration and deployment of PQC algorithms, and in the future, mechanisms like account abstraction will seamlessly integrate PQC into the user experience layer.

The cohesion of the community and the correction of the technical route should be emphasized to prevent community fragmentation and the risks of centralization.

The hidden dangers of Ethereum in the second dimension stem from changes in market structure: the large-scale intervention of Wall Street institutional capital is reshaping the economic and governance structure of Ethereum, which may erode the decentralized spirit of Ethereum, thereby triggering a dual risk of community division and infrastructure centralization.

Institutional investors are increasingly interested in Ethereum, locking up large amounts of ETH in structured financial products. The latest data from SER shows that the total amount of ETH held by institutions (including spot ETFs and DAT treasury) has reached 12.58 million, accounting for 10.4% of the total supply.

This large-scale capital accumulation is bringing about two structural changes:

Contraction of effective circulation: Glassnode research reveals that the share of ETH on CEX (centralized exchanges) has sharply dropped from about 29% to around 11%. As institutions transfer ETH from high liquidity venues like CEX to low liquidity structures such as ETFs or DATs, the market's effective circulation will continue to contract.

Changes in asset quality: Such transformations will also solidify ETH's positioning as productive collateral and a long-term savings asset. VanEck's CEO even referred to ETH as the “Wall Street token,” which reflects the institutional financialization of ETH.

In the PoS (Proof of Stake) consensus mechanism, the amount of ETH held is directly linked to staking rights and governance rights. Although ETH held through ETFs does not directly participate in on-chain staking, the large-scale economic concentration will grant major stakeholders significant potential governance influence. This economic concentration may gradually translate into governance control over the protocol decision-making process.

The core competitiveness of Ethereum comes from its vibrant open-source community and idealistic group of developers. However, the will of institutional capital often runs counter to the spirit of crypto punks.

The first risk of institutional capital involvement is the potential for community fragmentation. When governance power is concentrated in the hands of a few institutional stakeholders, the fairness and neutrality of the governance process will be challenged.

When Wall Street giants become the main holders, the discourse power of community governance will unconsciously lean towards capital interests. Even if Ethereum superficially maintains decentralization, actual power will be concentrated in a “small circle” formed by institutions such as BlackRock, Fidelity, and Bitmine.

The development of the Ethereum ecosystem will no longer rely solely on technological advantages, but will depend more on the proximity to capital, which will lead to a disconnection between economic value and community spirit. Ethereum will also shift from idealism to capitalism, thereby undermining the decentralized development foundation of the protocol.

In addition, institutions tend to favor compliance, stability, and auditability, while developers often pursue privacy, innovation, and resistance to censorship. If governance power is overly concentrated in the hands of institutions that control large amounts of capital, even in the absence of obvious corruption, community decisions may unconsciously lean towards maximizing the commercial value of stakeholders rather than maintaining the inherent fairness of the protocol and the principles of decentralization. This could alienate a large number of developers, lead to a talent drain, and undermine Ethereum's credibility as a neutral world computer.

Another far-reaching risk is that the behavior of institutional capital pursuing returns and operational efficiency may subtly alter Ethereum's technology roadmap, transforming decentralization at the consensus mechanism level into centralization at the physical layer.

First, in order to meet the extreme demands of institutions for trading processing speed and compliance, the underlying technology is likely to lean towards high-performance nodes, resulting in a significant increase in the threshold for ordinary users to run nodes.

Secondly, existing research shows that although Ethereum has a large validator pool, there is a serious geographical centralization phenomenon within its validator community, mainly concentrated in areas with the lowest network latency, particularly North America (East Coast) and Europe. North America is often the “focal point” of the network, which provides geographical advantages for validators in that region. If the staking ETFs from issuers like BlackRock and Fidelity are approved, this trend is expected to be further exacerbated.

Due to low latency speeds (which means receiving proposed blocks faster), there will be a direct translation into higher staking rewards and MEV (Maximum Extractable Value) capture efficiency, causing institutional-grade validators to accelerate their influx into these “minimum latency” areas. This profit-driven behavior pattern may solidify and exacerbate the current trend of geographical centralization.

In fact, this physical layer centralization also introduces single point risks. The ETH held by institutions is often staked through custodians, which leads to a concentration of numerous validation nodes in data centers subject to U.S. law. This not only causes geographic centralization but also exposes the Ethereum network to regulatory scrutiny risks (such as OFAC compliance requirements). Once the underlying layer no longer possesses censorship resistance, Ethereum will degrade into merely a “financial database” running on distributed servers. Therefore, the coupling of economic incentives and geography is transforming the decentralization at the protocol consensus mechanism level into physical layer centralization, which contradicts the fundamental security objectives of blockchain.

In order to prevent institutional capital from indirectly dominating governance, Ethereum can promote improvements from multiple levels.

In terms of community cohesion, Ethereum can empower developers with greater governance weight to balance the capital advantages of institutional giants. Community funding support will become an important supplement, and the Ethereum Foundation should significantly expand its Grant programs and collaborate with platforms like Gitcoin to subsidize open-source contributions, preventing talent loss due to capital bias.

In terms of correcting the technical route, Ethereum should promote a scheme that balances technology and incentives. Ethereum can suggest or encourage institutions to adopt multi-signature + DVT (Distributed Validator Technology) or re-staking combinations through certain incentive measures, allowing institutions to distribute their staked ETH across more independent nodes, which can meet both custody and compliance needs while enhancing the level of decentralization. In response to the issue of geographical concentration, Ethereum should introduce a delay balancing algorithm at the protocol layer and launch a subsidy plan for node dispersion, focusing on reducing the proportion of North American validators to a reasonable range. At the same time, the hardware threshold also needs to be lowered, in conjunction with client optimization solutions, to bring the cost of independent validators running full nodes within an affordable range.

Looking at the evolution of Ethereum, its essence is a history of racing against potential crises.

In the face of the “relentless pressure” from quantum computing and the “sugar-coated bullets” of Wall Street capital, Ethereum can actually build a new moat through quantum-resistant upgrades and balanced community governance, paired with software and hardware solutions. This battle of technology and humanity will determine whether Ethereum ultimately becomes the fintech backend of Wall Street or evolves into the public infrastructure of digital civilization.