Concerns about the centralization risk after Ethereum turns to POS

1. The most common misunderstanding is that if Lido pledges more than 51% of ETH, it will cause centralization risk.

Regarding this Lido’s consultant hasu gave a more systematic answer in an interview, in a nutshell:

1.1. Lido is not an entity, but a middle-layer protocol, or simply understood as an “alliance”, there are currently 29 node operators

1.2. The node operator is an entity that actually mortgages ETH, “similar” to the current POW mining pool, Lido cannot directly control the node operator

In some cases, if Lido’s values ​​of screening operators are too unified, it will lead to some soft governance risks, so Lido’s governance also introduces a dual governance model, stETH pledgers have governance veto power

1.3. If there is no Lido, we can look at the current top pledgers: kraken, coinbase, binance, if the exchange occupies too much mortgage, I believe it will not be a good thing

From these aspects, Lido is more helpful for the good staking of Ethereum 2.0.

2. Who will launch the 51% attack? How to launch an attack?

V God once discussed the security of POS relative to POW, and the cost of launching an attack is much higher than POW: https://vitalik.ca/general/2020/11/06/pos2020.html

I personally think that if someone will launch an attack, there is a high probability that it will be a certain exchange. In terms of mortgage trends, exchanges are also the institutions with the highest mortgage volume.

The path to attack may be to use pledged derivatives as transaction collateral, give above-average returns, etc., and absorb a large amount of new pledged ETH in the short term.

If this amount is higher than 51% of the collateral, the nodes of the exchange can be regarded as a single entity, and they have a certain ability to censor blocks.

If they launch an attack, it will inevitably cause some adverse consequences and effects. However, the recovery of POS is easier than POW. Once such an attack really occurs, I believe that the entire Ethereum community will fight back, and the exchange will lose its credibility.

The blockchain can be recovered through a fork, and due to the loss of credibility, a large number of users will also withdraw their assets from the exchange.

This attack is only hypothetical and is extremely unlikely to happen. Just like a POW mining pool if the computing power exceeds 51%, launching an attack will also cause righteous miners to migrate to other mining pools.

3. Client diversity also has certain centralization risks

The Ethereum consensus layer client Prysm once had more than 70% market share.

If a client has the vast majority of the market share, when it goes wrong, there is a chance that the incorrect block will be recognized as the correct block. As a result, the nodes that did not make mistakes are fined.

The Ethereum community was also actively addressing this issue last year, with Prysm currently down to around 40%.

4. The so-called rich get richer, “smart pig game” and other capital concentration risks

Assuming that an entity has 10M of collateral and a 4% annual mortgage income, after about 43 years of continuous compounding, it will have 51M of ETH. Assuming there is no inflation in the system, this single collateral entity will exceed 51% of its holdings by following this operation.

This assumption sounds scary, but in reality it’s hardly realistic. First of all, if there is such a large amount, it can almost only be an intermediary structure. Since the collateral of this kind of institution aggregates the assets of many users, it will always flow, and it is impossible to produce continuous compound interest.

If it is a single person, the current market price of this volume is 10 billion US dollars. When the price rises sharply, it is impossible to keep a large position unchanged.

At present, according to the mortgage situation, a single entity may have a maximum volume of 50w. According to the strategy of non-exit, it will only accumulate 3 million ETH after 50 years, and reach a volume of 2100w after 100 years.

This risk can be said to exist, but it is too difficult to implement. It requires enough initial assets and enough patience. If anyone can continue to do this for 50 years, they must be able to match Buffett.

In order to support the healthier development of Ethereum, staking ETH in a decentralized on-chain protocol is a long-term support behavior.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/concerns-about-the-centralization-risk-after-ethereum-turns-to-pos/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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