Ethereum co-founder Vitalik Buterin believes that centralized proof-of-stake (POS) poses a significant threat to Ethereum. Centralization of outlets is where big players dominate and small players join big pools.
Centralization increases the risk of problems like 51% attacks and transaction censorship. Additionally, there is a risk of value extraction, where a small group benefits at the expense of Ethereum users.
According to Buterin, risk exists in building blocks and providing staking capital.
The problem
Ethereum follows the Proposer-Builder Separation (PBS) protocol for building blocks. This means that the work is divided between validators, who propose blocks and offload the responsibility of choosing the contents of the blocks, and builders, who organize transactions into blocks and place bids.
Buterin noted:
“This separation of powers helps maintain the decentralization of validators, but it comes at a significant cost: the actors who perform “specialized” tasks can easily become very centralized.
Data from October 2024 indicates that just two builders are responsible for 88% of Ethereum blocks. This means that if these two manufacturers decide to censor a transaction, this can cause a delay: the processing of the transaction can take on average 114 seconds instead of 6 seconds. Although the delay may not affect certain transactions, builders can manipulate the market by delaying time-sensitive transactions, such as those during decentralized finance (DeFi) liquidations.
Therefore, the concentration of power can pose serious threats to the integrity of Ethereum.
Solutions
According to Buterin, one of the best solutions to avoid centralization is to further distribute block production responsibilities. Buterin proposes that the task of choosing transactions falls to the proposer, or bettor, and that the constructor can only choose the order of transactions and insert some of his own. This can be achieved through inclusion lists.
This is how it would work. A randomly selected player creates an inclusion list, which includes valid transactions. A block builder, when creating a block, must include all transactions in the include list, but has the power to rearrange them and add its own transactions.
Another possible solution is multiple proposal programs (MCP) like BRAID. According to Buterin, “BRAID seeks to avoid dividing the role of block proposers into a low-economy part and a high-economy part, and instead attempts to distribute the block production process among many players. , in such a way that each proposer only needs a medium level of sophistication to maximize their revenue.
Buterin noted that encrypted memory pools are a crucial technology needed to implement the design changes noted above. Using encrypted memory pools, users can broadcast their transactions in an encrypted format along with proof of their validity. Transactions are also included in the blocks in encrypted form: the manufacturer does not know their content. The transactions are only revealed later.
Buterin wrote that the main challenge in implementing encrypted memory pools is ensuring a design in which transactions are definitively revealed later. This can be achieved using two techniques: (i) threshold decryption and (ii) deferred encryption.
