Vitalik Buterin proposes solution for Ethereum's staking centralization issue

Vitalik Buterin has proposed a set of solutions to address Ethereum's staking centralization concerns as part of the network’s "Scourge" phase.

Sharing his thoughts in an Oct. 20 blog, Buterin raised concerns over the growing centralization of Ethereum staking, noting that smaller staking pools are being absorbed into larger ones. 

He warned that this centralization could increase the risk of transaction censorship, and proposed several technical solutions to minimize this risk and maintain Ethereum’s decentralized nature.

A key concern for Buterin is the economic pressures that encourage smaller staking pools to consolidate with larger ones.

Buterin warned that this level of centralization poses "one of the biggest risks" to Ethereum, particularly in terms of increased censorship and potential network crises. He added:

He pointed out that 30% of Ether is currently staked, which he said is already sufficient to protect the network from 51% attacks.

However, he cautioned that if a much larger percentage of Ether were to be staked, additional risks would emerge.

For instance, staking would become less profitable, and Ether holders would face more obligations.

He also warned that the slashing mechanism, a key feature of staking, could be weakened, and a liquid staking token might overshadow Ether’s "money" network effects.

The proposals by Buterin

To mitigate these risks, Buterin proposed capping the amount of Ether that can be staked by individual users and limiting staking penalties to 12.5% of the amount staked. 

He suggested a two-tier model, with one tier for “risk-bearing” (slashable) staking and the other for “risk-free” (unslashable) staking.

Per Buterin, this approach could balance staking rewards and risks while preventing a few large entities from controlling the network.

Responding to Buterin, Mario Raufal, host of Crypto Roundtable, supported the idea of a two-tier staking model, suggesting it could reduce the dominance of large entities in block production.

Buterin also responded to recent warnings from Ethereum Foundation researcher Toni Wahrstätter who raised concerns over the fact that just two Ethereum block builders, Beaverbuild and Titan Builder, produced nearly 89% of the network’s blocks in early October. 

Ethereum currently uses a proposer-builder separation method, where block builders are responsible for creating blocks that are then reviewed by proposers, who select the most profitable one. 

However, this separation has contributed to centralization, as only a few builders dominate the process.

Buterin acknowledged that this centralization poses a risk, potentially delaying transaction inclusion to up to 114 seconds, rather than the typical 6 seconds.

To mitigate this issue, he put forward the idea of “fork-choice-enforced inclusion lists.”

This approach aims to transfer transaction selection responsibilities back to the proposer while block producers would only focus on how the transactions are ordered.

An alternative solution, “BRAID,” involves dividing block production across multiple actors to decentralize the process.

Enhancing Ethereum

Earlier this month, Buterin outlined more plans aimed at enhancing Ethereum’s consensus model, primarily to tackle centralization issues by improving staking accessibility. 

He proposed reducing the minimum staking requirement from 32 ETH (approximately $81,500) to just 1 ETH.

This could democratize staking by allowing more participants, especially smaller holders, to contribute to network security without needing large sums of Ether.

Buterin also discussed the introduction of "single-slot finality," which would dramatically decrease the time it takes for a block to be finalized on the network.

Currently, it takes around 15 minutes for a block to be confirmed, but with single-slot finality, this could be reduced to as little as 4 seconds.