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Vitalik Buterin Ethereum Essay Recap

Vitalik Buterin Ethereum
By Nicolo Finazzi
Nicolo Finazzi

6 Min

May 31, 2023

In this essay, Vitalik Buterin provides an analysis of various strategies for the consensus mechanism of the Ethereum network. Additionally, the essay delves into the potential risks associated with several innovative proposals. The author distinguishes between low-risk practices, such as the dual use of validator-staked ETH, and high-risk approaches that attempt to exploit Ethereum's social consensus for personal gain. Vitalik strongly advises against the latter due to the substantial systemic risk it poses.

Throughout the essay, there is a notable emphasis on preserving the purity and simplicity of the blockchain while avoiding excessive expansion of the consensus mechanism. Vitalik highlights the significance of maintaining these principles. To achieve this, the essay proposes alternative security strategies such as decentralized oracles or court systems based on decentralized autonomous organizations (DAOs). These alternative approaches aim to fulfill the aforementioned objectives without jeopardizing the integrity of the Ethereum network.

Exploring Ethereum's Secure Consensus and Novel Proposals

The Ethereum network boasts a highly secure cryptoeconomic consensus system. With approximately 18 million ETH (equivalent to around $34 billion) held by validators, blocks are finalized every 6.4 minutes. Redundancy is ensured through the use of various protocol implementations. In the event of a cryptoeconomic consensus failure, whether caused by a bug or a deliberate 51% attack, a large community comprising thousands of developers and numerous users closely monitors the situation to ensure the correct recovery of the chain. Furthermore, strict protocol rules ensure that attackers are likely to face severe penalties.

Over the years, there have been several conceptual proposals to utilize the Ethereum validator set and even the Ethereum social consensus for other purposes. These ideas have remained largely theoretical, with no practical implementation. Examples include the "ultimate oracle," a mechanism where users can vote on the veracity of facts by sending ETH, and the "re-staking" technique, employed by protocols like EigenLayer, where Ethereum stakers can simultaneously use their stake as a deposit in another protocol, potentially facing penalties if they violate that protocol's rules. Additionally, there have been suggestions that the Ethereum L1 (Layer 1) could initiate recoveries of L2 (Layer 2) projects in the event of bugs or failures, using L1 soft forks as a means of restoration.

Understanding the Bigger Picture

The objective of this post is to provide a detailed argument explaining why a specific subset of techniques poses significant systemic risks to the Ethereum ecosystem and should be discouraged and resisted.

These proposals are typically put forth with good intentions. Therefore, the focus of this post is not to single out individuals or projects. But rather aims to examine the techniques themselves. The main argument defends the general rule that the dual use of validator-staked ETHis generally acceptable. This is true despite the inherent risks. However, the post strongly advises against attempting to exploit Ethereum's social consensus for personal applications. It considers it a practice that should not be encouraged.

What's so wrong with stretching the Ethereum consensus

Vitalik Buterin uses a hypothetical future scenario to explain why influencing the decisions of validators to take actions based on off-chain information could be dangerous for the Ethereum network.

The example is set to start in the year price oracle is introduced. Here, validators vote on the price hourly and receive rewards. However, laziness and false reporting lead to the introduction of incentives and penalties. Over time, more indices are added, including ETH/EUR, ETH/CNY, and rates for all G20 countries.

In 2034, Brazil faces a political crisis with a disputed election. The country splits into two factions, and Ethereum stakes provide rates based on their preferred faction. Community leaders propose forking the chain to support their chosen faction and drain the balances of opposing stakes. However, the outcome proves to be a near 50-50 split, resulting in two separate chains.

This division demonstrates how Ethereum, originally intended as a global platform free from national politics, becomes divided due to a severe internal issue within one G20 member state.

A blockchain's purity, focusing solely on mathematical consensus, offers significant advantages. However, once a blockchain integrates with the outside world, external conflicts can impact it. Even seemingly benign features like a currency oracle can potentially divide the community. This has been demonstrated by past events in several major countries.

Additional Scenarios

Here are a few additional scenarios:

  • Hyperinflation of a tracked currency disrupts markets, making it difficult to determine specific market prices at times.
  • If Ethereum incorporates a price oracle for another cryptocurrency, it could face a controversial split. In a similar way, this has already happened in Bitcoin and Ethereum's histories.
  • The implementation of strict capital controls turns the determination of legitimate market prices into a political question.

Moreover, there is a schelling fence at play. Once a blockchain begins incorporating real-world price indices as a core protocol feature, it opens the door for interpreting more real-world information. This expansion also increases the blockchain's vulnerability to legal attacks, transforming it from a neutral technical platform into a more explicit financial tool.

Possible risks

The solutions to these problems are varied and need to be approached on a case-by-case basis. Here are some possible solutions:

  1. Price oracles: Consider decentralized oracles that rely on trust assumptions or validator-voting-based oracles that have alternative emergency recovery strategies. For example, an oracle could have a delayed reward system to allow users to exit systems dependent on the oracle in case of attack or failure.
  1. Complex truth oracles: Explore the implementation of decentralized court systems built on non-cryptoeconomic DAOs to report on subjective facts.
  1. Layer 2 protocols:
  • Short-term: Implement partial training wheels or stage 1 solutions.
  • Medium-term: Utilize multiple proving systems, including trusted hardware like SGX as part of a multi-signature system.
  • Long-term: Strive to incorporate complex functionalities like "EVM validation" into the protocol itself.
  1. Cross-chain bridges: Minimize reliance on bridges and instead hold assets on their native chains, using atomic swap protocols to transfer value between different chains.
  1. Using Ethereum validators to secure other chains: Consider transforming into a validium, anchoring proofs into Ethereum, and relying on Ethereum validators. This approach enhances security against finality-reversion attacks and provides greater resilience against censorship attacks.

Each solution addresses specific challenges and should be evaluated based on its applicability to the particular problem at hand.

Closing Thoughts

Blockchain communities rely on social consensus, which is fragile due to the risk of chain splits and the challenges associated with upgrades, bugs, and attacks. While it is necessary, mature communities should use social consensus sparingly to avoid increasing the fragility of the core blockchain.

Caution is needed when application-layer projects attempt to expand the scope of blockchain consensus beyond verifying the core Ethereum protocol rules. While it may be a natural inclination for such projects, it can lead to misalignment with the overall community goals. This process lacks a limiting principle and could result in a community facing an uncomfortable choice between frequent splits and the establishment of a formalized bureaucracy with ultimate control over the chain.

Instead, it is important to preserve the minimalism of the blockchain. It is also important to encourage the use of re-staking without extending the role of Ethereum consensus. And, finally, to support developers in finding alternative strategies to achieve their security objectives.