In a recent proposal centered around Ethereum centralization, Vitalik Buterin, co-founder of the blockchain project, discussed the necessity of a third party as a counterpoise in the relationship between builders and proposers in the ecosystem. Buterin highlighted the need to limit the power of the former group as a way to handle the threat of censorship. In his opinion, builders should be bestowed with the power only “enough to capture almost all MEV that could be captured” to avoid abuse.
To that end, the Russian-Canadian programmer advanced three possible criteria to constrain builders in the research post published on Oct 1. The first is an ‘inclusion list paradigm,’ which features s list of transactions that proposers require to be included in the block. He provided an alternative approach in the form of proposer suffixes. This construction will allow a proposer to append a suffix to a block in a case where a builder has failed to include a transaction.
The third option he set forth is the pre-commit proposer suffix which attempts to address the shortcomings of the latter paradigm. The proposer-added suffix model is still retained here, but there are limits to what can be appended.
“The proposer must then add the suffix consisting exactly of the subset of the Merkle tree that has not yet been included by the builder, and that the gas limit allows them to include […] if they add any other suffix, they get slashed.”
Still, Buterin emphasized the need to minimize the roles of either party. Though the objective remains to constrain builders without laboring proposers, his suggestion comes with a trade-off.
It is either a third party or biting the bullet
The limitation of powers leaves some critical areas of the network unattended, hence the need for an outside actor in the production process.
“The simultaneous need to minimize the powers and information available to the builder, and the load imposed on the proposer, seems to clearly point towards the need for some third actor […] unless we bite the bullet and accept that builders have the right to see the inclusion list, and hence discriminate against particular transactions being included in the same slot,” he concluded.
Ethereum’s recent successful switch to the proof-of-stake (PoS) consensus has drawn mixed reactions and varying views from investors, traders and market observers. Ahead of the PoS transition, researcher Kyle McDonald suggested that the upgrade could be Ethereum’s saving grace from regulatory focus. In an interview with CoinDesk TV’s First Mover program, McDonald remarked that Ethereum could now see less scrutiny from financial market watchdogs.
He ascribed the same to the expectation of the Ethereum blockchain’s energy consumption efficiency reducing by 99% after the Merge. This, he opined, would send an unequivocal signal to regulators that assert that the energy-intensive PoW mechanism was never ‘a must’ in the first place. The crypto research also predicted that Bitcoin could become the first PoW crypto to be regulated away in at least some US or EU jurisdictions, arguing the king crypto may never scale the heights of $69k again. He justified this projection, pointing to the improbability of Bitcoin moving away from proof-of-work (PoW) consensus.
US SEC could pounce on Ethereum
Far from McDonald’s projections, the post-Merge environment has painted a contrasting picture. The resulting Ethereum PoS network has already attracted the interest of the US Securities and Exchange Commission. Last month, the WSJ reported that SEC the network’s native token, Ether, specifically its possible classification as security, is of primary interest to SEC chair Gary Gensler. The SEC claims that transactions occurring on the chain could be considered to be under the commission’s purview since the US hosts more Ethereum nodes than any other region,
While most of the potential legal action will be in the stateside scene, the outcome and effect on the network (and its protocols) could extend beyond the US. That said, it is unlikely that the SEC’s reasoning will hold water as there’s neither a well-founded case against Ethereum nor a solid interpretation of its token that jeopardizes the blockchain’s existence.
Industry experts opine that the increased focus on the premier altcoin represents persuasive efforts to regulate the broader sector without resorting to hostile policies. Nonetheless, investors ought to keep an eye on the developments around the same.
Claims that PoS consensus makes Ethereum theoretically less secure
Last month, a security expert on a layer-2 blockchain shared that post-Merge Ethereum, at the time not yet live, would be theoretically less secure than the current PoW Ethereum, given that the staking consensus mechanism is more vulnerable to exploit. Speaking to CoinTelegraph, the researcher, who preferred to remain unidentified, argued that if a rogue validator(s) is able to validate two consecutive blocks, they could theoretically carry out an exploit.
An attack started on ‘block N’ and completed on ‘block N+1’ would be easily realized without worrying about an arbitrage bot entering the picture and resetting the price the attacker has manipulated in the interim. He thus opined that since PoS allows validators prior information on what blocks they will validate, then they could easily plan such kind of an attack.
His argument on PoW being safer is that, while it is possible to line up two consecutive blocks for validation on this consensus mechanism, that comes down to pure luck. Therefore, the exploiter cannot contemplate such an attack vector. He noted that this vulnerability is a tough nut to crack, but the team behind Ethereum has been attempting to solve it. Remedying this, he believes, will make Ethereum gain even more security on the new consensus protocol. He also acknowledged that Ethereum has sufficient practical security, despite its theoretical vulnerability.
Low fees and PoW stance could hamper Bitcoin’s long-term security
Buterin has previously expressed concern over the future of Bitcoin’s security and overall sustainability. Last month, the Ethereum co-creator said that the network’s low fees and persistence with the PoW consensus speak to security issues. In an interview with columnist Noah Smith, Buterin observed that PoW requires the issuance of tokens to miners by design, and for a hard-capped token such as Bitcoin, this could spell trouble.
The block rewards (BTC) have been decreasing and will eventually cease, which means that miners will then no longer be incentivized to secure the network. With Bitcoin’s current daily fees at about $300,000, the crypto visionary noted that the network cannot achieve the revenue needed to run a potential multi-trillion-dollar system securely. Buterin also believes that PoW consensus is more vulnerable, which leaves user data at risk of getting compromised.
He advanced that PoW offers far less security than PoS for each dollar spent on fees. In a future where Bitcoin is worth about $5 trillion, an attack on the system would only require $ 5 billion worth of Bitcoin, as theorized by Satoshi Nakamoto. Buterin says that if such a future becomes real and the Bitcoin network is assaulted, then there might be a willingness to at least switch to a hybrid PoS consensus.
To learn more, visit our Investing in Bitcoin and Investing in Ethereum guides.
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