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Ethereum Centralization and Security Concerns: Buterin Suggests Censorship Mitigation Strategy

In a recent proposal centered on the centralization of Ethereum, Vitalik Buterin, co-founder of the blockchain project, discussed the need for a third party as a counterbalance in the relationship between builders and proposers in the ecosystem. Buterin stressed the need to limit the former group’s power as a way to deal with the threat of censorship. In his view, builders should only have the power “enough to capture almost any MEV that could be captured” to avoid abuse.

To this end, the Russian-Canadian programmer has put forward three possible criteria to constrain manufacturers in the research post published on October 1. The first is an “Inclusion List Paradigm,” which lays out a list of transactions that proposers must include in the block. He provided an alternative approach in the form of proposition suffixes. This construct will allow a proponent to add a suffix to a block in the event that a constructor has failed to include a transaction.

The third option he presented is the Pre-Engagement Proposal Suffix which attempts to fill in the gaps of this latter paradigm. The suffix pattern added by the proposer is still retained here, but there are limits to what can be added.

“The proposer should then add the suffix consisting of exactly the subset of the Merkle tree which has not yet been included by the builder, and which the gas limit allows him to include […] if they add another suffix, they are crossed out.

Still, Buterin stressed the need to minimize the roles of either party. While the goal remains to constrain builders without offering work, his suggestion comes with a trade-off.

It’s either third or bite the bullet

The limitation of powers leaves certain critical areas of the network unsupervised, hence the need for an actor outside the production process.

“The simultaneous need to minimize the powers and information available to the builder, and the burden imposed on the proposer, seems to clearly indicate the need for a third actor […] unless we bite the bullet and accept that builders have the right to see the opt-in list, and therefore discriminate against particular transactions included in the same slot,” he concluded.

Ethereum’s recent successful move to Proof-of-Stake (PoS) consensus has drawn mixed reactions and varied views from investors, traders, and market watchers. Prior to the PoS transition, researcher Kyle McDonald suggested that the upgrade could be Ethereum’s saving grace over regulation. In a interview with CoinDesk TVs first mover program, McDonald noted that Ethereum may now be less scrutinized by financial market watchdogs.

He attributed the same to the expectation of a 99% reduction in power consumption efficiency of the Ethereum blockchain after the merger. This, he reasoned, would send an unequivocal signal to regulators who argue that the power-intensive PoW mechanism was never “a must” in the first place. Crypto Research also predicted that Bitcoin could become the first crypto PoW to be regulated in at least some US or European jurisdictions, arguing that the crypto king may never reach the heights of $69,000 again. He justified this projection by pointing out the unlikelihood of Bitcoin moving away from the proof-of-work (PoW) consensus.

US SEC could pounce on Ethereum

A far cry from McDonald’s projections, the post-merger environment painted a mixed picture. The resulting Ethereum PoS network has already attracted the interest of the United States Securities and Exchange Commission. Last month, the WSJ reported that SEC the network’s native token, Ether, in particular its possible classification as security is of primary interest to SEC Chairman Gary Gensler. The SEC says that transactions made on the chain could be considered to fall within the jurisdiction of the commission since the United States hosts more Ethereum nodes than any other region,

While most potential legal action will take place in the US arena, the outcome and effect on the network (and its protocols) could extend beyond the United States. That said, the SEC’s reasoning is unlikely to hold water as there is neither a well-founded case against Ethereum nor a solid interpretation of its token jeopardizing the existence of the blockchain.

Industry experts believe that the increased focus on the first altcoin represents persuasive efforts to regulate the entire industry without resorting to hostile policies. Nonetheless, investors should keep an eye out for the developments around the same.

Claims that PoS consensus makes Ethereum theoretically less secure

Last month, a security expert on a layer 2 blockchain share that the post-merger Ethereum, at the time not yet live, would theoretically be less secure than the current Ethereum PoW, given that the staking consensus mechanism is more vulnerable to exploitation. Talk to Corner Telegraph, the researcher, who preferred to remain unidentified, argued that if one or more rogue validators are able to validate two consecutive blocks, they could theoretically achieve an exploit.

An attack started on “Block N” and ended on “Block N+1” would be easily carried out without worrying about an arbitrage bot entering the scene and resetting the price that the attacker manipulated meanwhile. He therefore reasoned that since PoS allows validators to get advance information about the blocks they will be validating, then they could easily plan this type of attack.

His argument that PoW is safer is that if it is possible to align two consecutive blocks for the validation of this consensus mechanism, it is pure luck. The exploiter cannot therefore envisage such an attack vector. He noted that this vulnerability is a difficult problem to fix, but the team behind Ethereum has attempted to fix it. Fixing this, he believes, will allow Ethereum to 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 a PoW position could hamper Bitcoin’s long-term security

Buterin has already expressed worry on the future of Bitcoin’s overall security and sustainability. Last month, the co-creator of Ethereum said that low network fees and the persistence of the PoW consensus point to security issues. In a interview with columnist Noah Smith, Buterin observed that PoW requires token issuance to miners by design, and for a hard-capped token such as Bitcoin, this could cause issues.

Block rewards (BTC) have diminished and will eventually cease, which means that miners will then no longer have an incentive to secure the network. With Bitcoin’s current daily fee at around $300,000, the crypto visionary noted that the network cannot generate the revenue needed to safely run a potential multi-trillion-dollar system. Buterin also believes PoW consensus is more vulnerable, which leaves user data at risk of being compromised.

He argued that PoW provides far less security than PoS for every dollar spent on fees. In a future where Bitcoin is worth around $5 trillion, an attack on the system would only require $5 billion worth of Bitcoin, as Satoshi Nakamoto theorized. Buterin says that if such a future becomes real and the Bitcoin network comes under attack, then there might be a drive to at least move to hybrid PoS consensus.

To learn more, see our Investing in Bitcoin and Investing in Ethereum guides.

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