Is Ethereum too decentralized?

For the longest time, we have believed that a significant number of average users being able to run a node, to use the chain trustlessly and verify transactions by others is a core tenet of decentralized blockchains. One significant reason why, is covered well by Hasu: Hasu on Twitter: “Let‘s make one thing clear: You defend against malicious protocol changes by having a culture of users validating the blockchain Not by having PoW or PoS” / Twitter. But also, the ability for users to interact with the chain themselves is what makes these protocols trustless.

The alternate line of thought is that this is highly inefficient and will lead to a situation where you’ll never have the scalability to attain mass adoption in the first place. Instead, why not just eliminate the culture of users verifying, and trust a number of reliable validators?

As an aside, the bitcoin block size debate may have been about small blocks vs large blocks at the time. But, in retrospect, it seems to have been about very small blocks vs small blocks. In this scheme, Bitcoin is more like “very small blocks”, while Ethereum and Bitcoin Cash are in the “small blocks” category. Back then, the debate was about how low should the barrier to entry for users verifying should be. With the alternate line of thought defined above, the “large blocks” are moved further out, as you no longer have to bother about users verifying at all.

This concept first gained prominence with EOS, but more recently, has seen a resurgence with Solana and other competitors. Indeed, a Twitter thread by Anatoly Yakovenko, the “creator of Solana” arguing against Vitalik’s article on scalability is informative in understanding a completely different philosophy: ANAT◎LY🦀 on Twitter: “1/n The scaling article by @VitalikButerin is great, but doesn’t actually offer any hard limits. There are no attack vectors described that have no solutions besides following those limits. There is another way!” / . In the thread, Anatoly argues against the idea of users verifying on consumer laptops (obviously, he seems to be confusing block production with verification, an important distinction), and instead, blockchains should be run on high-performance servers co-located. The job of validators is to build trust, so that users can vote for the most trustworthy ones. Though not mentioned here, the further argument I’ve seen elsewhere is that if validators are malicious, users should simply vote for better ones.

Like with EOS’ multi-billion dollar ICO, Solana has recently raised something like $500M from VCs recently, in addition to their initial funding rounds. This is an incredible amount of capital that public blockchains like Ethereum and Bitcoin could accomplish a lot with.

Recently, as Ethereum L1’s blockspace has been overwhelmingly saturated, we’re seeing more activity on BSC, Polygon, Solana etc. Some have declared this as evidence that “users don’t care, they just want cheap fees”. Of course, Ethereum has rollups imminent, but rollups are still bound by Ethereum’s consensus. Blockchains that actively reject the trilemma, like Solana or Polygon PoS, will continue to offer significantly lower fees than even rollups. Eventually, Ethereum will ship data sharding, stateless clients with state expiry, with the potential to expand data shards, and L2 <> L2 interoperability will be solved as the multi-L2 ecosystem matures, but it might take till 2023 till some of this matures.

Single-ledger monolithic chains are here today, and can “solve” the problem immediately. This is the opportunity to get a large user base, build network effects, and by the Ethereum ecosystem sorts out their stuff, you are already so far in the lead it wouldn’t matter.

I’m open to the idea that maybe users don’t care, they just want to use the most convenient products. Indeed, there’s plenty of evidence from the web2 world, where the most adopted services are the ones that are most convenient, despite their overwhelming problems with privacy. Plenty of technically superior technologies have failed throughout history, losing out to the ones that offered the best ease-of-use supported by strong marketing. Even in the crypto space, a lot of crypto retail loves to leave their funds on CEXs, so they are clearly not averse to the idea. While we should absolutely try and educate normies to follow better practices, like evangelists of losing-but-technically-superior tech have done throughout history, but we’ve to be prepared for a lot of this to be in vain.

However, I believe that even in the short term, this is not the right solution to the problem. A better solution would be validiums. Validiums, as a refresher, are rollups which use a secondary source for data availability (which makes them not rollups, but validiums). DeversiFi has been live for nearly a year now, and has successfully proven the model. Recently, we have seen Immutable X, live on mainnet for a few months. Volition builds on this by offering users the choice of rollup and validium within the same state. This concept is taken further by zkPorter, which will release a data availability solution with its own consensus mechanism. As a result, users can choose to use the rollup mode in zkSync 2.0 for maximum security, with an option for validium mode (zkPorter). While zkPorter’s consensus mechanism will almost certainly end up as centralized as the “large block” chains, it has a crucial advantage. Thanks to sharing state root with its rollup sibling, validium’s consensus mechanism do not have the ability to reorg or steal your funds. At most they can freeze your funds, alongwith their own. As such, even the most centralized validium will still be significantly more secure. Of course, there’s significant technical risk with a validium solution, and likely won’t be ready till the end of the year. I’d say that rollups definitely provide enough scalability till then.

The biggest issue I see, however, is that if users really don’t care, they’ll just use centralized aggregators. CEXs like Coinbase and Binance have proven there’s an incredibly successful business model around this. While currently they are focused on token exchange, we’ve seen some like OKEx dip their toes into aggregating DeFi protocols. Visa settling on Ethereum through centralized third parties is another example. As the case for blockchain smart contracts grow, we’ll see more of these solutions. And large financial institutions absolutely care about decentralization and security — they will always use Ethereum.

While large VCs are betting big on the centralized large block model, I’m just not seeing the long-term viability here. As you can see, I’ve tried hard to play devil’s advocate, but ultimately ended up failing. I have not even touched upon obvious questions like economic sustainability. But, what do I know? Many of these VCs are probably more successful than I am, and I’m open to being wrong. I think the Ethereum community should be too, and be prepared to pivot. No one wants to end up Betamaxed.

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Rants and musings on blockchain tech. All content here in the public domain, please feel free to share/adapt/republish.

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Polynya

Rants and musings on blockchain tech. All content here in the public domain, please feel free to share/adapt/republish.