The Concerns About Ethereum Centralization Explored by Vitalik Buterin
Vitalik Buterin, one of the co-founders of Ethereum [ETH], has recently delved into the potential risks of centralization within the Ethereum network as well as the solutions being considered by the team.
One of the key factors contributing to centralization risks, as highlighted by Buterin, is the concentration of block creation and staking. In October, for instance, the majority of ETH blocks were produced by just two entities – Beaver and Titan, accounting for almost 90% of block creation.
What implications could such high levels of centralization have on the network?
Furthermore, Buterin has emphasized how the dominance of large stakers could lead to an increased susceptibility to network attacks and censorship. He stated,
“The concentration of power among large stakers heightens the risk of 51% attacks, transaction censorship, and other critical issues. Apart from the threat of centralization, there are concerns regarding value extraction – a situation where a small group seizes value that should rightfully belong to Ethereum’s users.”
Potential Approaches
Over the past year, these risks have intensified due to the growing use of specialized algorithms, such as MEV (Maximum Extraction Value), by block creators to maximize their profits.
“Larger entities can deploy more advanced algorithms (MEV extraction) to construct blocks, consequently increasing their earnings per block.”
To address the block creation dilemma, Buterin has proposed the inclusion lists strategy as a probable solution. This involves a collaborative effort between proposers and builders in handling the task.
“The primary solution lies in breaking down the block production process further: entrusting the selection of transactions to the proposer (a staker), while the builder focuses on ordering and adding certain transactions. This is the primary aim behind inclusion lists.”
The team has been actively exploring various aspects of inclusion lists with differing trade-offs and aims to finalize a unified approach.
Regarding staking risks, approximately 34 million out of the circulating supply of 120 million ETH is currently staked, representing close to 30% of the total ETH supply.
According to Buterin, the continuous growth in staking could potentially lead to the dominance of a single liquid staking token (LST) and a reduction in overall liquidity.
To counter this scenario, the team is considering reducing staking rewards and imposing a cap on the amount of ETH that can be staked.
In conclusion, Buterin has reaffirmed the commitment to preventing the extraction of value from users in favor of centralized control, with the aim of averting the path towards centralization. Following this update, the sentiment surrounding ETH experienced a positive boost, indicating optimism among market participants about the future price movements of this altcoin.
While the specific solutions to these issues remain to be determined, addressing them could ultimately enhance the long-term value of ETH.
As of the current moment, the price of ETH stands at $2.6K, just shy of a significant hurdle on its way to the bullish target of $2.9k.