Ethereum co-creator Vitalik Buterin has raised concerns about the increasing centralization in both staking and block production within the Ethereum ecosystem. In an Oct. 20 post, Buterin proposed several innovative solutions to mitigate these risks, which could potentially threaten Ethereum’s core value of decentralization.
Buterin pointed out that economies-of-scale within staking have led smaller staking pools to consolidate into larger ones, contributing to centralization. This issue has become particularly concerning as two entities were responsible for building 88.7% of all Ethereum blocks over the first two weeks of October.
Staking Centralization Risks
Buterin emphasized that staking centralization poses a significant risk to the Ethereum network. Currently, around 30% of all Ether (ETH) is staked, which is already more than enough to protect the network from a 51% attack. However, Buterin warned that if this percentage increases, it could create unintended risks.
He noted that if nearly all ETH were staked, staking would become less profitable, and Ether holders would face more obligations. Furthermore, it could weaken the slashing mechanism—a tool used to punish bad actors—and allow liquid staking tokens to take over Ether’s network effects as the preferred medium of exchange.
Buterin’s Proposed Solutions
To address these risks, Buterin proposed several key solutions:
- Capping ETH Staking: Limit the amount of Ether that any individual or entity can stake.
- Risk-Tiered Staking Models: Introduce a two-tier system where stakers can choose between “risk-bearing” (slashable) and “risk-free” (unslashable) staking options. This would help reduce the potential downsides of staking too much Ether.
- Fork-Choice-Enforced Inclusion Lists: Shift the responsibility of choosing transactions back to the proposer or staker while allowing builders to determine transaction order. This would help decentralize the block-building process and reduce the risk of transaction censorship.
- BRAID (Block Production Splitting): A mechanism that distributes block production across several actors to reduce the concentration of power among block builders.
Block Production Centralization
Buterin also raised concerns about Ethereum’s block production becoming overly centralized. Ethereum uses a proposer-builder separation model where block builders construct blocks and proposers choose the most profitable one. However, this has resulted in just two entities building nearly 90% of blocks in recent weeks, leading to fears of transaction censorship and market manipulation.
If this centralization continues, users may face longer wait times for transaction confirmation, giving block builders more time to extract user revenue through methods like sandwich attacks, Buterin explained.
Conclusion
While Ethereum’s security is not currently at risk, Vitalik Buterin’s concerns highlight the importance of decentralization in ensuring the network’s long-term success. His proposed solutions, such as capping staked Ether and implementing decentralized block production mechanisms like BRAID, aim to protect Ethereum from potential future threats that could arise from centralization.
As Ethereum continues to grow, maintaining decentralization will be crucial to preserving its core values of security, inclusivity, and trustlessness.
