Vitalik Buterin Admits Both PoW and PoS Have Their Own Issues

• Ethereum’s co-founder has reignited the debate on centralization in both Ether’s PoW and PoS systems.
• Buterin has argued that PoW’s centralization received less scrutiny due to its temporary nature.
• Despite the energy efficiency gains of PoS, questions about true decentralization have remained.
  

The debate surrounding Ethereum’s transition from proof-of-work (PoW) to proof-of-stake (PoS) has reignited after Vitalik Buterin , Ethereum’s co-founder, acknowledged centralization issues in both systems. This comes in response to concerns raised by some community members who believe the PoS model concentrates power and validation.

Is Ethereum’s Decentralization a Myth?

Amanda Cassatt, CEO of Serotonin, initiated the conversation by expressing her observation of individuals who felt Ethereum should have remained on PoW. She attributed this sentiment to worries over centralization and power imbalances within the PoS system.

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Cassatt suggested that PoS resulted in a more centralized validation process, potentially disrupting the initial checks and balances within the PoW ecosystem. Buterin’s response was surprising. He concurred with Cassatt, admitting that PoW also exhibited “quite a bit of centralization.”

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However, he argued that this issue received less scrutiny when PoW was the dominant consensus mechanism. To substantiate his claim, Buterin provided a graph depicting the dominance of mining pools during Ethereum’s PoW era.

PoW was also quite centralized. It was just not talked about as much, because everyone knew it was only a temporary stage until PoS.

And that doesn't even get into how we probably mostly avoided ASICs only because the upcoming PoS switch meant no incentive to build them. pic.twitter.com/OhaqmRiiGJ

— vitalik.eth (@VitalikButerin) April 26, 2024

The graph revealed a concerning level of power concentrated in a few entities. Spark Pool, for instance, controlled a staggering 33% of the mining power, while Ethermine held 21%. Other mining pools like Zhizhu.top, Nanopool, and F2Pool also wielded significant influence.

Buterin explained the lack of focus on PoW centralization by suggesting stakeholders were aware of its impermanence. They understood it as a “temporary stage” leading to the eventual implementation of PoS.

How Ethereum’s Security System Works Now

Buterin believes the looming transition to PoS likely discouraged significant investment in Application-Specific Integrated Circuits (ASICs) designed specifically for Ethereum mining . This lack of ASIC development further weakened the PoW system.

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It’s important to remember that Ethereum completed its transition to PoS in September 2022. Since then, validators have committed a substantial amount of ETH tokens, exceeding 32.5 million, to the Beacon Chain staking contract. The collective value of these staked tokens surpasses $101.5 billion, considering the current price of ETH at $3,125.

The recent exchange between Buterin and Cassatt highlights the ongoing debate regarding the ideal consensus mechanism for blockchain networks. While PoS offers advantages like reduced energy consumption, concerns about centralization persist.

On the Flipside

• While less likely than in PoW mining pools, a small group of validators could potentially collude to manipulate the network.
• Although there are many validators, the distribution of staked tokens itself might be concentrated. Whales or large institutions could hold a significant portion of the staked ETH.

Why This Matters

This renewed debate about centralization in both PoW and PoS systems throws a wrench into the idea of a perfect consensus mechanism. While Ethereum’s switch to PoS addressed sustainability concerns, the quest for a truly decentralized network with balanced validator power remains challenging for the entire cryptocurrency space.

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　　Disclaimer: Includes third-party opinions. No financial advice. See Risk Warning.