Vitalik Buterin, co-founder of Ethereum, has outlined major risks associated with Ethereum’s Proof-of-Stake (PoS) mechanism. In a recent blog post titled “Possible Futures of the Ethereum Protocol, Part 3: ”The Scourge”.
Buterin went on to describe how economic factors could cause centralization, a condition that threatened the network’s security. He outlined that more needs to be done to keep Ethereum as a decentralized platform with strong security as it continues to grow.
Vitalik Buterin Highlights Risks & Solutions In Ethereum POS
Buterin cautioned that the PoS of Ethereum could become concentrated over time given the principle of scale economies where the large stakers trump the smaller ones. This might result in the smaller stakers leaving the process and join the bigger staking pools. This level of centralization would increase the chance of 51% attack and transaction inhibition.
The Ethereum co-founder added that large network participants could be using complex algorithms to optimize the block construction and get a higher share of the revenue.
Such participants with more capital can also bear the risk of locked capital by introducing liquid staking tokens (LSTs) and pass the risks to the other smaller participants. Buterin highlighted that if these potential problems are not solved, they can erode Ethereum’s decentralization and security. Despite these concerns, analysts have pointed to a potential rally in the ETH price to record highs above the $3000 resistance by end of October.
Block Construction and Staking Capital: Areas of Concern
Buterin identified two critical areas vulnerable to centralization: boarding and capital provision for staking. Larger actors could use superior algorithms to extract Maximum Extractable Value (MEV) per block to gain more revenue per block than smaller actors. This would, in turn, open up more incentives for centralization.
In order to reduce these risks, Buterin suggested measures that were based on the idea of decentralizing actual block construction. He pointed out that “committee inclusion lists” and other mechanisms must be used to prevent centralization when forming blocks.
This would assist the little stakers to be on the same level playing field as the big players in block construction.
Vitalik Buterin Addressing the Risks of Overstaked Ethereum
Vitalik Buterin also highlighted that there is a possibility of over-staking which is another issue that might arise with ETH. Currently, around 30% of the total ETH is staked, and in his response, Buterin noted that if the percentage rises even more dramatically, it could result in ETH’s further centralization.
He pointed out that if the amount of staked ETH were to rise drastically, it would become more of an obligation than an option, and most of the ETH owners would vote for their tokens through centralized providers.
Buterin suggested some solutions to counter over-staking such as modifying the Ethereum’s issuance curve in a way that the returns should decrease if the amount of staked ETH goes beyond a certain level. This would ensure that there is no centralization of power whereby a particular group of people holds a large number of staked ETH.
Future of Ethereum’s Scalability: ‘The Surge’
Vitalik Buterin also discussed Ethereum’s future in terms of scalability in a separate post, titled “Possible Futures of the Ethereum Protocol, Part 2: The Surge.” He outlined plans to increase Ethereum’s transaction throughput to over 100,000 transactions per second (TPS) through data availability sampling and rollup technology.
This phase, part of ETH’s ongoing development roadmap, aims to maintain decentralization while dramatically increasing the network’s capacity.
According to Buterin, these scalability upgrades will reduce the amount of data each node needs to process, enabling the network to scale efficiently. He also called for closer integration between Layer 1 and Layer 2 networks, to create a unified Ethereum ecosystem that offers seamless and scalable solutions to users.
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