Buterin recommended capping the amount of Ether a user can stake and limiting staking penalties to 12.5% of staked Ether.
Ethereum co-creator Vitalik Buterin has pitched several solutions to help Ethereum Staking block production and staking centralization through the “Scourge” phase of Ethereum’s technical roadmap.
In an Oct. 20 post, Buterin shared concern that economies-of-scale within staking has resulted in small staking pools leaving for larger pools, while two entities have built 88% of Ethereum blocks over the first two weeks of this month.
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One of the primary challenges Ethereum faces in its transition to PoS is the complexity and efficiency of the staking process. Staking involves users locking up their ETH to validate transactions and maintain the network, in exchange for rewards.
However, the current staking mechanism has been criticized for its high barriers to entry, including the requirement to stake a minimum of 32 ETH, which can be prohibitively expensive for many users.
Buterin stressed that staking centralization poses “one of the biggest risks” to Ethereum and could lead to a higher risk of transaction censorship and “other crises,” stating:
“One of the biggest risks to the Ethereum L1 is proof-of-stake centralizing due to economic pressures.”
Buterin said the 30% of Ether ETH$2,728.14 currently staked is already more than enough to protect Ethereum from 51% attacks, but additional risks would arise if almost all Ether were to be staked.
Staking would become less of a “profitable task” and impose more obligations on Ether holders, said Buterin, adding the slashing mechanism would weaken, and a liquid staking token could take over “money” network effects from Ether.
To combat the issues, Buterin recommended capping the amount of Ether a user can stake and limiting staking penalties to 12.5% of staked Ether.
This could be achieved via a two-tier “risk-bearing” (slashable) and “risk-free” (unslashable) staking model.
His concerns over block production centralization come after Ethereum Foundation researcher Toni Wahrstätter recently pointed out that two Ethereum block builders — Beaverbuild and Titan Builder — had built 88.7% of all Ethereum blocks over the first two or so weeks of October.
Ethereum follows the proposer-builder separation method for block construction, where builders create blocks for the proposer to review, often choosing the most profitable one.
However, assigning “specialized” tasks to specific actors has led to centralization problems, Buterin said.
Another critical issue that Buterin seeks to address is the efficiency of block production. In a PoS system, validators are responsible for creating new blocks and adding them to the blockchain. However, the current mechanism can sometimes lead to inefficiencies and delays, particularly when there are a large number of validators competing to produce blocks.
To tackle this, Buterin has proposed a new consensus algorithm called “EIP-1559,” which aims to improve the efficiency of block production by introducing a more dynamic fee structure. This algorithm would adjust the gas fees (transaction fees) based on network congestion, making the process more predictable and reducing the likelihood of delays.
While Ethereum’s security isn’t at risk, Buterin said the issue could lead to worsening transaction censorship and force Ethereum users to wait up to 114 seconds for block inclusion instead of 6 seconds.
The delay could give more time for block builders to extract user revenue via sandwich attacks or give rise to “significant market manipulation” with decentralized finance liquidations.
Buterin pitched a “fork-choice-enforced inclusion lists” proposal in which the task of choosing transactions would return to the proposer or staker, and the builder only chooses how the transactions are ordered (in addition to inserting some of their own).
The transition to Ethereum 2.0 is a complex and multi-phase process that involves significant technical and logistical challenges. Buterin’s proposals are part of a broader effort to address these challenges and ensure a smooth transition to a more efficient and sustainable PoS model.
The Ethereum community, including developers, researchers, and users, is actively engaged in testing and refining these proposals.
The successful implementation of these solutions will not only enhance the performance and security of the Ethereum network but also pave the way for broader adoption and innovation in the decentralized finance (DeFi) and non-fungible token (NFT) spaces.
An alternative solution is “BRAID” — a proposal that splits the block production process between several actors where each only needs to have a “medium amount of sophistication to maximize their revenue.”
