2024-10-23 19:58 |
Ethereum co-founder Vitalik Buterin has outlined several solutions to combat increasing centralization risks in the Ethereum network’s proof-of-stake mechanism, particularly focusing on block production and staking economics.
The proposals come at a crucial time, as recent data shows concerning concentration levels in block production.
“Since early October, approximately 88% of Ethereum blocks have been determined by just two major entities,” Buterin noted in a comprehensive analysis dubbed the “The Scurge” released Monday, highlighting the urgency of addressing these centralization trends. His comments are part of the third installment of his ongoing essays on the network’s “potential future.”
Notably, at the heart of Buterin’s proposed solutions is reimagining the block production process. The current system, which relies heavily on MEVBoost (Maximal Extractable Value Boost), has created what Buterin called “economies of scale” that naturally favor larger stakeholders. While this concentration hasn’t yet led to critical vulnerabilities, it poses risks for network security and user experience.
“One of the biggest risks to the Ethereum L1 is proof-of-stake centralizing due to economic pressures…this would naturally lead to large stakers dominating, and small stakers dropping out to join large pools. This leads to higher risk of 51% attacks, transaction censorship, and other crises,” Buterin explained.
Buterin proposed several technical innovations to counter these trends, including implementing “inclusion lists” and encrypted mempools. These mechanisms would help distribute block production responsibilities more evenly across the network while protecting transaction privacy.
The analysis also addressed concerns about staking economics, particularly concerning the current situation where approximately 30% of Ethereum’s market supply is locked in staking. Buterin warned that unchecked growth in staked ETH could lead to several challenges, including the transformation of staking “from a process of generating additional income into a duty for all cryptocurrency owners.”
Among the proposed solutions is a novel two-tier staking scheme that would lower barriers to entry for individual participants while maintaining network security. In his initial essay, Buterin suggested reducing the minimum staking requirement from 32 ETH to 1 ETH, making it more accessible for users to engage in the network.
This approach aims to balance accessibility with responsibility, though Buterin acknowledges the challenges in implementation, noting that “we still need to ensure that the ‘risk-free layer’ has some useful role and some level of risk.”
The proposals also addressed the contentious issue of MEV revenue distribution, suggesting protocol-level changes to make these earnings more transparent and equitably distributed among participants. This could help reduce centralization pressures pushing users toward large staking pools.
For individual stakers, Buterin highlighted the need to reduce operational costs, noting that current cloud solutions for running a node cost approximately $60 monthly, significantly impacting potential returns for smaller participants.
That said, these proposals represent a significant step toward addressing Ethereum’s growing pains as it continues to mature as a proof-of-stake network, balancing the needs for security, decentralization, and accessibility.
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