Ethereum at a Crossroads: Quantum Threat Looms, Wall Street Capital Exerts Double Squeeze

Author: J.A.E, PANews

With the frequent approvals and widespread launch of spot ETFs, Ethereum appears to have completed a magnificent transformation from a “geek experiment” to a “global asset.” However, under the spotlight of the crypto market, the largest smart contract platform in the industry now stands at a historical crossroads.

Beneath the prosperity, undercurrents are surging. Recently, Ethereum co-founder Vitalik Buterin issued a warning at the Devconnect conference: Ethereum is currently facing three major risks—quantum computing threats, increasing control by Wall Street, and the fairness of governance. These three pressures will test Ethereum’s long-term sustainability and resilience as a trusted neutral infrastructure.

Technical: Quantum Threat Looms, Post-Quantum Upgrade Added to Roadmap

Beyond the blockchain trilemma, a more fundamental layer of risk is approaching: cryptographic security.

The most destructive risk facing Ethereum comes from the disruption quantum computing can bring to modern cryptography. This technological threat is sudden and non-linear; once a critical threshold is breached, all defenses could be instantly dismantled.

Ethereum, like most blockchain networks, relies on the Elliptic Curve Digital Signature Algorithm (ECDSA) for account security. Its security is based on the computational difficulty of solving the Elliptic Curve Discrete Logarithm Problem (ECDLP). In the classical model, deriving a private key from a public key requires exponential time, making it computationally infeasible.

However, this assumption is becoming increasingly unstable in the face of rapid quantum computing development. Peter Shor’s 1994 algorithm poses a fatal threat to ECDLP-based cryptosystems. Shor’s algorithm leverages quantum superposition and entanglement to reduce the computational complexity of ECDLP from exponential time under traditional models to polynomial time. This is considered “efficient” or “manageable” computational time since its growth is relatively controlled as input size increases. Compared to exponential time, polynomial time algorithms can practically solve much larger problems.

This means that if a fault-tolerant quantum computer (FTQC) with sufficient computing power emerges, it will be able to efficiently derive users’ private keys from exposed public keys (which are usually revealed on-chain when a user initiates a transaction), forge digital signatures, and gain unauthorized control of and steal users’ funds. This risk fundamentally undermines cryptographic asset ownership and forces the Ethereum ecosystem to complete a large-scale cryptographic migration before the arrival of quantum supremacy.

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

Industry predictions for the quantum supremacy day are accelerating. According to Metaculus, the emergence of a quantum computer capable of breaking RSA has been moved up from 2052 to 2034. IBM plans to deliver the first FTQC in 2029.

In response to the quantum threat, Ethereum has made PQC (post-quantum cryptography) one of the key goals of the long-term roadmap’s Splurge phase.

Ethereum’s preventive strategy is both proactive and flexible.

Ethereum will use L2 as a testing sandbox. Post-quantum cryptographic algorithms will first be trialed on L2 to evaluate their performance and security, while avoiding disruption or risk to L1. This layered upgrade strategy allows the network to prudently preempt evolving technological threats.

As for candidate algorithms, Ethereum is exploring various PQC schemes, mainly including:

1. Lattice-based cryptography: These algorithms are considered to have strong mathematical resistance to quantum attacks.
2. Hash-based cryptography: Such as SPHINCS and its component HORST, which can use Merkle tree structures to build scalable, post-quantum secure signature systems.

This reliance on L2 solutions gives Ethereum a flexibility advantage. Compared to Bitcoin, whose design philosophy emphasizes immutability and rigid protocol, Ethereum’s structured design allows it to iterate and deploy PQC algorithms more quickly, and in the future, seamlessly integrate PQC into the user experience layer through mechanisms such as account abstraction.

Focus on Community Cohesion and Technical Course Correction to Prevent Community Split and Centralization Risks

The second dimension of Ethereum’s hidden dangers comes from changes in market structure: the large-scale entry of Wall Street institutional capital is reshaping Ethereum’s economic and governance structure, which may erode Ethereum’s spirit of decentralization and trigger the dual risks of community split and infrastructure centralization.

Institutional investors are increasingly interested in Ethereum and are locking up large amounts of ETH in structured financial products. According to the latest SER data, institutions (including spot ETFs and DAT treasuries) now hold a total of 12.58 million ETH, accounting for 10.4% of total supply.

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

1. Shrinking effective circulation: glassnode research shows that the share of ETH on CEXs (centralized exchanges) has plummeted from about 29% to around 11%. As institutions move ETH from high-liquidity venues like CEXs to low-liquidity structures such as ETFs or DATs, the market’s effective circulating supply will continue to shrink.
2. Change in asset characterization: This shift will further cement ETH’s role as productive collateral and a long-term savings asset. VanEck’s CEO even referred to ETH as a “Wall Street token,” reflecting the financialization of ETH by institutions.

In the PoS (Proof of Stake) consensus mechanism, ETH holdings are directly linked to staking and governance rights. While ETH held via ETFs does not directly participate in on-chain staking, the high degree of economic concentration grants large stakeholders significant potential governance influence. This economic concentration may gradually translate into governance control over protocol decision-making.

Ethereum’s core competitiveness originates from its vibrant open-source community and idealistic developer base. However, the will of institutional capital is often at odds with the crypto-punk spirit.

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

When Wall Street giants become the main holders, community governance power will silently tilt toward capital interests. Even if Ethereum appears decentralized on the surface, real power will be concentrated in a “small circle” of institutions such as BlackRock, Fidelity, and Bitmine.

The development of the Ethereum ecosystem will no longer depend solely on technical advantages, but rather on proximity to capital, leading to a decoupling of economic value and community spirit. Ethereum will shift from idealism to capitalism, undermining the decentralized development foundation of the protocol.

Additionally, institutions favor compliance, stability, and auditability, while developers often pursue privacy, innovation, and censorship resistance. If governance power is overly concentrated in the hands of capital-rich institutions, even without overt corruption, community decisions may quietly shift toward maximizing stakeholder commercial value rather than upholding the protocol’s intrinsic fairness and decentralization principles. This could alienate many developers, cause a talent drain, and weaken Ethereum’s credibility as the world’s computer.

Another far-reaching risk is that the pursuit of returns and operational efficiency by institutional capital may subtly alter Ethereum’s technical roadmap, transforming decentralization at the consensus layer into centralization at the physical layer.

First, to meet institutions’ extreme demands for transaction processing speed and compliance, base-layer technology is likely to tilt toward high-performance nodes, greatly raising the threshold for ordinary users to run nodes.

Second, existing research shows that while Ethereum has a large validator pool, its validators are already geographically concentrated in regions with the lowest network latency, particularly North America (US East Coast) and Europe. North America is often the “focal center” of the network, giving validators in this region a geographical advantage. If staking ETFs from issuers such as BlackRock and Fidelity are approved, this trend is expected to intensify.

Because low latency (i.e., faster block reception and proposal) directly translates into higher staking returns and MEV (Maximal Extractable Value) capture efficiency, institutional validators will flock even faster to these “minimal latency” regions. Such profit-driven behavior may solidify and exacerbate current geographic centralization trends.

In fact, this physical centralization introduces single-point risks. ETH held by institutions is often staked via custodians, leading to large numbers of validator nodes concentrated in data centers under US legal jurisdiction. This not only causes geographical centralization, but also exposes the Ethereum network to regulatory scrutiny risks (such as OFAC compliance requirements). Once the base layer loses censorship resistance, Ethereum degenerates into just a “financial database” running on distributed servers. Thus, the coupling of economic incentives and geography is turning decentralization at the consensus layer into centralization at the physical layer, violating the fundamental security goals of blockchains.

To prevent institutions from indirectly dominating governance, Ethereum can promote improvements on multiple fronts.

For community cohesion, Ethereum can give developers greater governance weight to balance institutional capital advantages. Community fund support will be critical; the Ethereum Foundation should significantly expand the Grants program and, together with platforms like Gitcoin, subsidize open-source contributions to prevent talent loss due to capital tilt.

For technical course correction, Ethereum should promote a mix of technical and incentive-based solutions. Ethereum can incentivize or require institutions to use multisig + DVT (Distributed Validator Technology) or restaking combinations, dispersing staked ETH across more independent nodes. This balances custody and compliance needs while improving decentralization. To address geographic concentration, Ethereum should introduce latency-balancing algorithms at the protocol layer and launch node dispersion subsidy programs, focusing on bringing the proportion of North American validators down to a reasonable range. Hardware thresholds should also be lowered, and client optimization solutions should be adopted to make running a full node as an independent validator affordable.

Looking at Ethereum’s evolution, it is essentially a race against potential crises.

Facing the “relentless advance” of quantum computing and the “sugar-coated bullets” of Wall Street capital, Ethereum can still build new moats through post-quantum upgrades, balancing community governance weights, and integrating software and hardware solutions. This battle between technology and human nature will determine whether Ethereum ultimately becomes Wall Street’s fintech backend or the public infrastructure of digital civilization.