Ethereum Co-founder Vitalik Buterin Proposes Decentralization Boost through Penalty System Overhaul

In a bid to enhance decentralization within the Ethereum network, Vitalik Buterin, the co-founder of Ethereum, unveils plans to revamp its penalty system, as outlined in a recent blog post.

Interestingly, Buterin took to Twitter to share his thoughts on the matter after Elon Musk queried why he hadn’t been utilizing the platform.

Ethereum relies on a proof-of-stake consensus mechanism, where validators safeguard the network by staking ETH. These validators receive rewards for processing transactions, but failure to fulfill their duties, whether intentionally or inadvertently, can result in fines and a reduction in their staked Ethereum.

The proposed modification aims to tackle the issue of potential centralization stemming from large stakers or pools controlling multiple validators under the same infrastructure. Notably, Lido stands out as the largest ETH staking pool, boasting over 302,000 validators, followed by Coinbase with another 142,000 validators, according to data from a Dune Analytics dashboard.

Each validator necessitates 32 ETH, valued at $114,485.76 at present. However, pooled staking providers enable individuals to stake varying amounts of ETH and receive a corresponding share of rewards, albeit with deducted fees.

Buterin underscores the theory that larger stakers, whether wealthy individuals or staking pools, may operate numerous validators on the same internet connection or physical device, thereby increasing the risk of correlated failures. Consequently, he proposes imposing heightened penalties on such entities.

The proposed solution incentivizes physical decentralization by amplifying penalties for simultaneous failures among validators likely controlled by the same entity. This strategy derives from data analysis indicating that validators within the same cluster exhibit a higher likelihood of failing together compared to those in separate clusters. By implementing penalties that align with the degree of correlation in failures, the system seeks to discourage the concentration of validator operations, fostering greater decentralization within the Ethereum network.

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