Ethereum throws in the towel in the hashrate race

Ethereum has finally thrown in the towel in the hashrate race. The pastiche of Bitcoin has changed from Proof of Work to Proof of Stake.

Difference Between PoS and PoW

PoW, or “proof of work”, cryptographically proves that a certain amount of energy has been expended. It is a key mechanism of the Bitcoin protocol.

In short, miners seek by trial and error a “hashes” particular. They obtain it by entering a block of data into the famous SHA-256 algorithm. The latter takes as input any amount of data and converts it into a hashes :

0000000000000000057fcc708cf0130d95e27c5819203e9f967ac56e4df598ee

You could give the bible as input that the SHA-256 algorithm would always give you a hashes 64 digits and letters output. In the case of Bitcoin, the data provided as input include:

  • The transactions of the last ten minutes (or rather the roots of the Merkel tree)
  • the hashes of the previous block (hence the expression BlockCHAIN)
  • A release (a number that miners fluctuate wildly to generate hashes hoping to find one that starts with the correct number of zeros)
  • A Timestamp (timestamp)

This block (hashes) is then verified by thousands of nodes scattered all over the world. It is automatically refused if it does not respect the rules of the protocol.

However, since the energy provided by the miners is not free, the latter are encouraged to behave in a virtuous manner. Not to mention the reward of 6.25 BTC per block that would pass them by.

Ethereum worked similarly before the “merge”. But as they say, the electricity used by the miners would be a waste, weaning the population of electrons… Not to mention the CO2 emissions… So, wouldn’t it be possible to agree on the veracity transactions, without any ambiguity, simply by talking to each other?…

This is what the Ethereum PoS system seeks to do by employing only nodes (validators). Becoming a node requires putting 32 ETH in escrow.

The validators are gathered in committees every 6.4 minutes according to a pseudo-random process called RANDAO. Each committee includes at least 128 validators from which only one is selected to create a block then verified by the remaining 127 validators.

The validators earn an annual rate of 5% per year, but it is mainly the punishment system (the “slashing”) that encourages people to follow the rules. Depending on the fault, a validator can lose between 0.5 ETH and all of their 32 ETH…

This way of doing things contrasts sharply with Bitcoin. Miners who violate the protocol (badly formatted block, invalid transactions, fork…) do not risk having their machines confiscated… At worst, a little electricity will have been wasted.

“Our own laws of physics. »
The problem is that “our” is malleable. Ethereum miners used to be part of “our” and now they are not.
I prefer bitcoin and real physics that don’t change on a whim. »

Where the shoe pinches…

First, the quantity of ETH is expected to remain fixed. Therefore, it is predicted that the caste of validators will get richer and richer, doing nothing… By the way, 10% of the 120 million ETH in circulation is currently deposited in escrow (Proof of Stake).

Moreover, slashing is a Damocles sword that will make validators bow down before any change in the protocol. To be an ETH validator is to live in fear of being slashed without having a voice (written by Comrade Vitalik).

Another pitfall: centralization. A blockchain is centralized when a handful of actors can exercise unilateral control over its operation and development, ad vitam aeternam.

Isn’t that what is likely to happen with Ethereum? What will happen if ever an ill-intentioned group obtains control of the majority of nodes ?

Game over. Conversely, in the PoW system, it would be possible to buy more machines from mining to regain control.

Only three entities control more than half of ETH nodes: Lido, Coinbase and Kraken:

Ethereum distribution pool.  Validator distribution by staking pool
Distribution of ETHEREUM validator pools

Some will argue that the situation is similar when looking at BTC mining pools. Sure, but miners can leak in seconds if their pool starts doing unholy things like censoring transactions. On the other hand, it takes between 6 and 12 months to get your ETH out of Lido…

And while miners are scattered across over 130 countries and regions, the offices of Coinbase and Kraken are in the United States. The vulnerability to state attack is immense.

It is also much easier for an attacker to buy and resell ETH than mining machines.

Finally, can we talk about decentralization as Vitalik Buterin continues to influence the protocol. It is not for nothing that Satoshi Nakamoto disappeared and threw away the keys to his million BTC.

Quite the opposite of Vitalik who did not hesitate to pre-mine 70% of ETH. Let’s never forget that 18% of the 60 million pre-mined ETH was offered to the founders, and that a handful of thousands of insiders were able to buy the ETH at $0.30 each…

In short, the embarrassing and pale imitation having disarmed, it will soon be categorized as “security”. End of the masquerade. Monetary hegemony is always a fight to the death.

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Nicolas Teterel avatar
Nicolas Teterel

Journalist reporting on the Bitcoin revolution. My papers deal with bitcoin through geopolitical, economic, and libertarian prisms.

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