Ethereum Merger Completed Why We Don’t Need to Worry About Centralization

background

After the sanctioning of the currency mixing protocol Tornado Cash, many discussions about low-level censorship began to intensify.

Tornado Cash was sanctioned for providing services for cyber-hacking crimes, and one of its main founders was arrested and jailed in Amsterdam. Concerned about being implicated, a large number of dApp developers, stablecoin issuers and exchanges are considering blacklisting addresses that have interacted with Tornado Cash.

In this context, Ethereum is also getting closer to the day of merger. There are concerns that network validators may be forced to censor block content in order to prevent illegal transactions from taking place. Currently centralized exchanges including Coinbase and Binance control a large amount of staked tokens, and most users participate in crypto activities through the products provided by these centralized exchanges.

These concerns seem to be overstated, with Ethereum, the base layer, being less likely to be censored and no more likely to be censored after the merger than before the merger.

short term consideration

First let’s take a look at the current composition of staking Ethereum:

Ethereum Merger Completed Why We Don’t Need to Worry About Centralization

Obviously the main players are still entities with a high degree of centralization: Lido, Kraken, Binance, Coinbase, and of course less centralized projects like Ankr or RocketPool are involved. But this is only 11% of the total circulating supply of Ethereum, and the equilibrium state of Ethereum staking is higher than 50% of the total circulating supply.

Solana Circulation Share:

Ethereum Merger Completed Why We Don’t Need to Worry About Centralization

Solana achieves this with fewer validators, but suffers from higher running costs and fewer options for liquid staking. It would be unreasonable to think of Ethereum as centralized just because it contains snapshots of less than 25% of the total supply.

No need to worry about the base layer

It is undeniable that centralized exchanges are the main players in the current staking activities.

Ethereum Merger Completed Why We Don’t Need to Worry About Centralization

Centralized exchanges have deposited a total of about 4.2 million ETH into the beacon chain, and the reserves shown by these exchanges in CryptoQuant are $36 billion, or about 22.542 million ETH. On the basis of not buying Ethereum in large quantities, if the exchange uses all the reserves for staking, they can only control 20% of the total liquid supply of staking. At the same time, liquid staking protocols will have a way to achieve full decentralization. Before centralized exchanges are enough to pose a threat to the market, liquid staking services will increase the degree of decentralization to achieve the purpose of non-censorship.

For liquid staking services, “uncensorable decentralization” means that two conditions need to be met: anyone can participate in activities without any permission, RocketPool is permissionless, but Lido is not; centralized validators such as government agencies cannot Sanction any one service.

The fallacy of “chaebol rule”

The biggest criticism of PoS is that it creates a chaebol system that only secures a few whale players and allows them to achieve a monopoly. The feature of PoW’s complete “low threshold” entry will not have such problems at all.

Ethereum Merger Completed Why We Don’t Need to Worry About Centralization

The facts are quite different indeed, and Proof of Work has similar problems. It can actually get worse because of the PoW operating structure.

In a PoW structure, miners have always been net sellers and highest-fee extractors of Ethereum tokens, having a direct conflict of interest with the community or development team working on the chain, and can therefore also create huge potential problems for the network. The best example is the 2016-2018 Bitcoin block war, which at one point posed a real threat to the network. The stifling of Bitcoin’s computing power by Jihan Wu and others from Bitmain may seem like a joke, but at the height of the war, it seemed to be a real threat. Miners can be very influential if they are allied together, and the worst case scenario is that the merger is deadlocked again. Instead of trying to decentralize, they will turn the network into a digital version of the U.S. Congress, but proof-of-stake does not require a centralized network.

Ethereum Proof of Stake also has a level of sophistication that mitigates the additional centralization trend that comes with reliance on staked capital. The first is the maximum balance parameter, which is set to 32 ETH, which is both the minimum balance required by the validator and the maximum amount limit used to calculate rewards. If the validator earned 1.44ETH in the first year but did not withdraw the reward, then the income in the second year is still 1.44ETH. In other words, the combined network stake is not merged into a single validator, allowing a large number of validators to participate.

The second function that helps the network achieve balance is the way the base reward is calculated, which is inversely proportional to the square root of the total active stake:

Ethereum Merger Completed Why We Don’t Need to Worry About Centralization

The base reward determines most other forms of reward and punishment

This means that as active staking increases, the reward decreases at an accelerated rate, helping to mitigate situations where major players deploy thousands of nodes too quickly.

The Future: PBS and Sharding Design

In the future, Ethereum will introduce some form of data sharding to increase network throughput and reduce fees for the main chain and rollup users, in this way to reflect the combined advantages. We don’t yet know the exact details about it or when it will appear before our eyes, but the latest discussion is centered on PBS (EIP-4488).

This proposal introduces a new sharding design called “proto-danksharding”. It will introduce an extra piece of data called a “blob” up to 1MB. The introduction of “blob” is mainly to reduce the computational load of the validator. Similar to how MEV works, block construction under this program will have a new set of participants, who then bid on validators.

Ethereum Merger Completed Why We Don’t Need to Worry About Centralization

In this setup, validators will no longer be able to censor transactions, nor select transactions in blocks. Instead of processing all transactions included, they will blindly validate the highest bid block header. In theory, validators could censor block builders, but how this will happen is unknown. Due to the increased decentralization of builders, censorship may not be allowed.

Vitalik Buterin: In order to avoid high systemic requirements for validators in this design, we introduced PBS: a special category of participants, block builders, bid to select the transaction content, the proposer only needs to select the valid block header with the highest bid, and only the block The block builder needs to process the entire block (a distributed block generator can be implemented using a third-party decentralized oracle protocol)

So not only are we still in the early days in terms of staking services, but in the medium to long term, validators may not be able to censor at all. Exchange validators will lose the option to include specific transactions, and block builders themselves have a path to decentralization. Governments can easily sanction centralized project parties such as stablecoin issuers, but as long as projects built in the ecosystem are committed to decentralization, the base layer will remain secure.

summary

It is not worth it to hope that the relevant laws will be reviewed at the basic level, and the government always lags behind in formulating relevant laws. What’s more, there are many more cost-effective targets in the market than attacking the base layer validator, so when worrying about the security of Ethereum, you might as well consider centralized stablecoins, multi-signature wallets and DAOs. There is an urgent need for dApps to achieve decentralization, and it is hoped that in the future, the potential for low-level censorship will not be a stumbling block that hinders the development of the project.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/ethereum-merger-completed-why-we-dont-need-to-worry-about-centralization/
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