Concerns Over Ethereum’s Proof-of-Stake Centralization
Vitalik Buterin, co-founder of Ethereum, has raised alarms regarding the centralization of proof-of-stake (PoS) protocols, which he argues poses a serious threat to the integrity and security of the Ethereum network. This centralization can occur when large stakeholders dominate, compelling smaller stakeholders to aggregate their tokens into larger pools.
Risks Associated with Centralization
The increasing centralization can lead to significant vulnerabilities, including:
- 51% attacks
- Transaction censorship
- Value extraction, wherein a select few profit at the expense of the broader Ethereum user base
Buterin emphasizes that these risks manifest particularly in the realms of block construction and the provision of staking capital.
The Mechanisms Behind the Problem
Ethereum incorporates a mechanism known as proposer-builder separation (PBS) for block construction. This framework divides responsibilities between validators, who propose blocks, and builders, who compile transactions and organize the block’s content through bidding.
Insights from Buterin
“While this separation of powers promotes decentralization, it introduces a risk: the specialized roles can inadvertently become centralized.”
As of October 2024, data reveals that two primary builders are responsible for 88% of Ethereum’s blocks. This concentration of power means that if these builders opt to censor transactions, it could result in significant delays—transactions taking an average of 114 seconds instead of the typical 6 seconds. Such delays, especially during critical operations like DeFi liquidations, could severely disrupt the market.
Proposed Solutions to Mitigate Centralization
To counteract centralization, Buterin suggests a re-evaluation of responsibilities in block production. He proposes that the decision-making power for transaction selection should revert to stakers, while builders would be tasked only with ordering transactions and adding their own. This can be facilitated through inclusion lists.
How Inclusion Lists Work
In this model, a randomly selected staker generates an inclusion list containing valid transactions. The block builder, in turn, must include all transactions from this list but retains the flexibility to rearrange them or add additional transactions.
Exploring Multiple Concurrent Proposers
Another innovative approach is the implementation of multiple concurrent proposers (MCP) frameworks, such as BRAID. According to Buterin, this model aims to distribute block production across numerous participants, ensuring that each proposer engages with a manageable level of complexity to maximize their earnings.
Importance of Encrypted Mempools
Buterin identifies encrypted mempools as a vital technology for realizing the proposed changes. Encrypted mempools allow users to submit transactions in an encrypted format, maintaining the validity of these transactions without revealing their content until a later stage. The builder cannot discern the transaction contents during this process.
Addressing the challenge of ensuring that transactions are revealed later can be achieved using two methods: (i) threshold decryption and (ii) delayed encryption.