Train of Thought: Security of ETH
In this short post I wanted to write out a train of thought that I had and I'd like to see what people's opinion on this topic were. Anyways it begins:
In the current state of Ethereum, we are transitioning from a proof-of-work model to a proof-of-stake model, but there is a particular point I'd like to bring up that could end up repeating itself while Ethereum is transitioning to Proof-of-stake.
An argument that I heard a while back for proof-of-work was that it could be centralized around the mining pools it runs on. These pools could potentially have more than 50% of the Network's hash power, or a group of them could control the entire network. Now this argument was quickly discredited by many, saying that miners are not loyal to the pools they mine for. But what would happen if a majority of the bigger pools all colluded together to make it so that people wouldn't be able to support the other side of the argument. I believe many people would say, "we don't have enough decentralization" or “we need more decentralization.” Well, we saw a great example of this with the mining pools creating a protest. In this protest, someone listed the pools that we're FOR and AGAINST EIP 1559, and from what I saw, there was only one mining pool that was FOR EIP 1559, but that single pool had KYC. This in itself shows that even if you are a part of the majority, if you do not OWN a popular mining pool, you don't have any say in what gets passed on Ethereum.
Now we know that mining secures the blockchain of Ethereum, but when proof-of-stake replaces proof-of-work, who are the people that are going to be securing all of Ethereum? It’s pretty simple; it’s the validators.
With the proof-of-stake system, Ethereum developed, the 51% attack vector is now a 67% attack, which in short “makes it harder for attackers to take control of the network.” But what happens when people are voluntarily giving their Ethereum to the equivalent of a mining pool (i.e. Centralized Exchanges and Staking as a service Providers). In this case, I can’t use the same answer that I used for the POW argument. With withdrawals not implemented yet, you can’t use the same solution that "Validators are not loyal to the Centralized Exchanges.” CEXs control the keys and the votes to all of the validators, and people who want to stake ETH have given CEXs this power because someone told them to “stake on an exchange because it’s easier.” If this continues, we’ll be a slightly more decentralized Binance Smart Chain.
With that said, there are many SaaS (Staking as a Service) providers out there, and they claim to be decentralized, but do you even know what it means to be decentralized? You are giving your ETH to a company to stake. Let me repeat that, you are giving ETH to a COMPANY to stake. Is a company decentralized? F*ck no. Sure the company built the “decentralized” contract, but who runs the nodes and validators? Why do I have to go through trials and be whitelisted to be a validator for YOUR platform? I thought that the ethos of Ethereum was to be as decentralized and permissionless as possible.
Why is decentralization important? My perception of decentralization is that it include zero possible downtime, a laissez-faire government approach, and legitimacy. My personal reason to support decentralization is fairly simple, in the case if something ever happens to the financial system that I live in, I can choose to opt-out (without anyone getting in trouble), and they won’t be able to stop me.
In the Ethereum ecosystem I can only really support people who Solo-Stake at this time, because there is no other way to properly decentralize your Ethereum stake. The only other alternative that I see as a solution, to allowing everyone to stake no matter the amount of ETH, is going to be Rocket Pool (when they launch). In short, Rocket Pool is the only truly trustless and decentralized protocol (not a service provider) and I can't think of a reason why it wouldn't do well.
I'm sure many people reading already had their own ideas or maybe came to your own conclusion. Mine consists of RP being the no-brainer choice, even if you have to wait for it, but let me know what you think.