"The more things change, the more they stay the same"
-- Jean-Baptiste Alphonse Karr
Cryptocurrencies have been promoted as alternative to the current monetary system. They seem outside the control of governments and traditional financial institutions. Still, monetary systems are complex and can be hard to understand. When the details are examined, we can realize Ethereum may be headed toward creating a new federal reserve.
First, let's review how the federal reserve system works. First the government issues debt. The banks deposit the debt with the federal reserve, and then are able to loan some multiple of that debt. It used to be 10x, but the formula of how much they can lend has gotten more complex, and has been altered by different regulations over time. The federal reserve sets the basic interest rate of how debt pays.
Currently, people acquire Ethereum. When they want to transfer Ethereum, the fees go to miners. However, proof-of-stake changes the equation. Instead of going to miners, the rewards will go those who've put down a deposit. Only a limited number of nodes are supported by proof-of-stake. It seems logical those who've put down the biggest proof-of-stake should control the system. These 'miners' get paid the mining fee. This fee constitutes the risk-free interest rate for banks replacing government debt. However, this fee is charged on a per transaction basis. The US government funds its bonds based off income tax. The new tax is a per transaction tax, which will be most expensive for people making the most transactions. Thus, smaller transactions will likely pushed off the blockchain. We will return to this in a moment.
Those who run the proof-of-stake system will likely absorb most of the Ethereum currency. It doesn't make sense to hold much Ethereum not locked up to do proof-of-stake if you can lock up your Ethereum and earn interest. So, it seems likely this Oligarchy of banks will buy up all the Ether. If you want to do a transaction on-chain, you will buy some Ether from them, do your transaction, and then the transaction fees will go back to a bank. It will make sense to represent assets off-chain and go through someone to do a transaction.
It will make sense to go through the most trusted party. This party will be the banks with the biggest amounts locked up on the chain. Further, these banks to do transactions on-chain if need be with their constant supply of Ether from mining. It seems logical these banks should decide to start making loans. I see no constraint from these banks engaging in fractional reserve banking. These banks can also alter mining fees, effectively changing the interest rates. Essentially, these banks can take over the power of the Federal Reserve.
One wonders who these banks might be? Does anything prevent Goldman Sachs or JP Morgan Chase from buying up lots of Ethereum? I don't think so. It seems reasonable to assume the traditional banks might be able to buy their way into the blockchain. Likewise, the government regulators can do as they always have.
The technology can change, but that doesn't mean the system will really change. Perhaps, there might be some more transparency with an open blockchain. The early investors in Ethereum may get rich. Still, this doesn't mean the system will fundamentally change.