The Bank of Italy warns that Ethereum's potential collapse could immobilize over $800 billion in assets, urging regulatory action.
The Bank of Italy has raised alarms about the potential collapse of Ethereum's infrastructure, which could immobilize assets exceeding $800 billion during a market downturn. This warning stems from a study conducted by economist Claudia Biancotti.
In her report, titled "What if Ether Falls to Zero?", Biancotti highlights the critical relationship between the value of Ethereum and the operational integrity of its decentralized network as a significant vulnerability.
Ethereum operates through independent validators who earn rewards in ETH. Should the token's value plummet, the incentives for these validators to maintain network operations would diminish, potentially leading to a catastrophic failure in transaction processing.
As validators shut down their systems to mitigate losses, transaction confirmations could slow down and ultimately cease altogether.
Risks for Users and Assets
The most pressing threat is to users holding assets built on the Ethereum blockchain. Even assets that are fully collateralized, such as stablecoins like USDT and USDC, could lose all value.
In the event of a network shutdown, these assets would be stuck in wallets, rendered untransferable due to the infrastructure's failure.
A declining Ethereum value would not only dissuade validators but also weaken the network's overall security, making it easier for attackers to execute a 51% attack, which could allow them to manipulate transactions.
Proposals for Regulatory Action
Biancotti suggests two key recommendations for regulators:
- Prohibit regulated financial entities from utilizing public blockchains.
- Mandate that issuers of tokenized assets create comprehensive disaster recovery plans.
To safeguard user interests, she advises maintaining off-chain ownership records to facilitate balance restoration on alternative networks in case of a blockchain failure, as automated cross-chain solutions may be unreliable during crises.
Conversely, Michael van de Poppe, founder of MN Trading, contends that the notion of Ethereum's impending demise, particularly due to its recent performance against Bitcoin, lacks merit.
