Vitalik Buterin Proposes a New Way to Decentralize Ethereum Staking
Ethereum staking is facing a centralization problem – but the network’s co-founder, Vitalik Buterin, proposed a new way to solve the problem on Tuesday.
In a blog post, Buterin proposed changing the penalty system for Ethereum validators by increasing the costs of Colombian misconduct.
**Penalizing centralized Ethereum staking**
In particular, the method would impose high penalties on validators who misbehave, even accidentally, if a large portion of the separately staked ETH misbehaves at the same time.
“The theory is that if you are a single large player, any mistakes you make are more likely to propagate across all the “identities” you control, even if you split your coins across many nominally separate accounts,” he wrote.
In September 2022, Ethereum switched to a proof-of-stake consensus mechanism, allowing users to earn a return on their ETH by locking their coins within the protocol. Additionally, control is over block validation and transaction processing in the hands of those who hold the most ETH.
This includes centralized exchanges and staking providers such as Lido, Coinbase and Binance, which offer services where smaller investors’ ETH is pooled to be invested in. Even asset managers like Fidelity are trying to use some of users’ assets for staking purposes.
This has raised concerns in the community about possible collusion between major Ethereum validators to launch a hostile takeover of the network – especially if the government forces them to do so. JPMorgan, for example, noted in October that the Merge and Shanghai upgrades have resulted in greater centralization of Ethereum.
**Buterin’s war on large Ethereum validators**
While large Ethereum validators already face larger “slashing” penalties – explicit cuts to a validator’s stake – compared to smaller stakeholders, Vitalik said that penalties related to Such an unusual event is not enough to move the needle on centralization.
“This paper proposes to extend a similar type of anti-correlation incentive to more ‘mundane’ errors, such as failing to certify, which almost all auditors make at least occasionally,” he explained.
In theory, such a system could create economic disincentives against centralized operations and help reduce economies of scale in the industry.
Last week, Buterin also proposed a “rainbow staking system” that would create new classes of Ethereum staking participants based on their goals.
The system would reduce the economic and technical burden of independent staking requiring “everything from everyone,” which has led ETH investors to invest through centralized services instead.
“We are very dependent on ‘social pressure + virtue,’” he said of centralized staking providers earlier this month. “If it is unavoidable, we should be clearer about whether we rely on incentives or on social pressure + virtue, rather than relying excessively on the latter.”
