Vitalik Buterin Proposes Solutions to Mitigate Centralization Risks in Ethereum

In a recent post on October 20, Ethereum co-creator Vitalik Buterin addressed concerns regarding centralization in Ethereum’s staking and block production processes. He outlined potential solutions as part of the “Scourge” phase of Ethereum’s technical roadmap.

Centralization Concerns in Staking

Buterin highlighted a troubling trend: economies of scale in staking are driving smaller pools to larger ones, leading to increased centralization. Notably, during the first two weeks of October, two entities were responsible for an astonishing 88% of all Ethereum blocks. He warned that this level of centralization could heighten the risks of transaction censorship and other crises within the Ethereum network.

“One of the biggest risks to the Ethereum L1 is proof-of-stake centralizing due to economic pressures,” Buterin stated.

Currently, about 30% of Ether (ETH) is staked, which is more than sufficient to protect against 51% attacks. However, Buterin cautioned that if a large majority of Ether were staked, it could lead to a decline in the profitability of staking, imposing greater obligations on Ether holders. He also noted that the existing slashing mechanism could weaken under these circumstances.

To combat these centralization issues, Buterin proposed capping the amount of Ether an individual can stake and limiting staking penalties to 12.5% of staked Ether. He suggested implementing a two-tier staking model consisting of “risk-bearing” (slashable) and “risk-free” (unslashable) options.

His concerns were echoed by Ethereum Foundation researcher Toni Wahrstätter, who reported that two block builders—Beaverbuild and Titan Builder—accounted for 88.7% of all Ethereum blocks in early October.

Ethereum utilizes a proposer-builder separation model for block construction, where builders create blocks that proposers review. However, this system has inadvertently led to centralization. While Buterin reassured that Ethereum’s security is currently intact, he warned that the issue could exacerbate transaction censorship, potentially leading to block inclusion delays of up to 114 seconds, compared to the typical 6 seconds.

Such delays could facilitate user revenue extraction through sandwich attacks and exacerbate market manipulation, especially during decentralized finance (DeFi) liquidations.

Innovative Proposals

To address these challenges, Buterin suggested a “fork-choice-enforced inclusion lists” model. In this proposal, the task of choosing transactions would revert to the proposer or staker, while builders would focus solely on ordering the transactions and inserting some of their own.

Another alternative he discussed is the “BRAID” proposal, which would decentralize block production among multiple actors. This approach would require each participant to possess only a moderate level of sophistication to maximize their revenue.

Vitalik Buterin’s proposals underscore the urgency of addressing centralization risks within Ethereum’s ecosystem. As the network evolves, finding a balance between efficiency and decentralization will be crucial for maintaining the integrity and security of Ethereum. These proposed solutions may pave the way for a more resilient and equitable staking and block production framework.