Vitalik Buterin warns that proof-of-stake centralization risks may harm Ethereum’s integrity and user trust as large stakers dominate.
Innovations like fork-choice-enforced inclusion lists and encrypted mempools aim to enhance decentralization in Ethereum’s block production.
MEV extraction by large players can lead to transaction censorship, highlighting the need for diverse participation among stakers.
The urgent issues that the Ethereum protocol is experiencing were recently brought to light by Vitalik Buterin's article, "Possible Futures of the Ethereum Protocol, part 3, The Scourge." He highlighted how proof-of-stake techniques carry a risk of centralization.
Due to the economies of scale enjoyed by large stakeholders, smaller stakeholders could feel under pressure to join larger pools. This pattern may make 51% assaults, transaction censorship, and value extraction from Ethereum users more likely.
https://twitter.com/VitalikButerin/status/1847811676164542857 Centralization Risks in Ethereum's Proof-of-Stake Model
In the current Ethereum landscape, block construction and staking capital provision present risks. Larger participants can deploy sophisticated algorithms for maximum revenue, particularly through MEV (Miner Extractable Value) extraction. As a result, small stakers face difficulties, leading to an increased concentration of power among a few large players.
Furthermore, if too much ETH is staked, it could threaten network integrity and user trust. However, this year has seen substantial advancements in block construction methods. Ethereum has converged on innovative approaches such as committee inclusion lists combined with targeted solutions for transaction ordering. Moreover, researchers have proposed models to mitigate these risks, such as two-tiered staking systems and reduced issuance rates.
Innovative Solutions to Improve Decentralization
Currently, Ethereum employs proposer-builder separation through MEVBoost, which creates a marketplace for block contents. While this structure aims to decentralize validator roles, it inadvertently concentrates power among a few builders. If two builders dominate 88% of Ethereum blocks, the risk of transaction censorship increases.
Nevertheless, strategies like fork-choice-enforced inclusion lists (FOCIL) and multiple concurrent proposers (MCP) seek to distribute block production responsibilities. These methods enhance decentralization while reducing the economic incentives that lead to consolidation. For instance, the BRAID scheme proposes parallel proposers generating transaction lists. This approach balances sophistication among participants and decreases the risks associated with MEV.
Buterin also discussed encrypted mempools, which allow users to broadcast transactions securely. This technology is vital for many proposed solutions, ensuring that user transactions remain private until block inclusion. Consequently, it enhances network security and minimizes potential manipulation.
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