Satoshi’s 1 CPU, 1 VOTE vision, ethereum 2.0 and global financial instability
“1 CPU, 1 vote” was the philosophy on which Satoshi built bitcoin on. The idea was to distribute control over a financial system to the masses where everyone and no one would control it.
Everyone because it will require a collective consensus to change or do anything on the network, for example create new transaction entries, but it can’t (and shouldn’t) take just one (or a small sub-set of the collective) to take it over.
Bitcoin’s proof-of-work was later found very susceptible for hardware optimisations which resulted in a high barrier of entry for anyone who wanted to become a miner on the bitcoin blockchain.
ethereum’s proof-of-stake has a clear vision to stay away from centralised power hoarding towards something that could resemble the 1 CPU, 1 vote dream. That is, a system in which the barrier of entry was very low and massive-scale optimisations were not possible.
Current ethereum POS implementation requires running some software and having 32 ETH to become a validator. This does reduces the barrier of entry but there are still 2 main points that will keep most ETH holders from ever becoming validators. The first is a technical one and the second is financial. In other words, it’s difficult and expensive to become a validator.
Luckily both of those issues have viable (and trustless) solutions.
Technically speaking, to become a validator one needs to run 3 types of softwares. An ethereum 1.0 node, a beacon chain (ethereum 2.0) and a validator. They are all depending on one another to execute a healthy validator operation, that is, signing on proposed slots (blocks).
An optional technology stack where the user controls his validator’s private keys but uses a 3rd party eth 1.0 + beacon chain + validator combo
The very reward mechanism for validators dictates that a validator needs to be online and needs to enforce some rules when he votes. This requires anyone who wants to become a validator to make sure his setup is extremely robust and stable, sometimes, even scalable depending on how many validators he wants to run.
This might sound simple but running 2 full nodes (eth 1.0 and beacon chain) and a validator client is a hard thing and expensive thing.
The way to solve this will be to use a 3rd party for the infrastructure side but still maintaining control of your private keys. basically having someone offer you an eth 1.0 + beacon chain + validator combo and you having control and running your own “validator hot wallet”.
It’s important that the proof-of-stake community will remain decentralised, meaning that validators are in control of their private key.
The minimal requirement to become a validator is 32 ETH, at the time of writing it’s roughly $4.5K. Not a huge sum but neither a small one.
As ETH price continues to clime it will become more and more expensive to become a validator. ETH at $1000 (back to 2017 prices) would have required $32K as a minimum to stake. That’s just not feasible for the absolute majority of the ethereum community.
One solution, for anyone wanting to stake less than 32 ETH, is to use some centralised staking pool like many exchanges started to offer in recent months. That might solve an individual’s problem but would create a more substantial network level problem where a few services basically control the consensus mechanism for ethereum.
That might sound similar to mining pools (a few pools control 51% of the bitcoin hashing power) but those mining pools have many individuals participating, they can move to a different pool very fast if a particular mining pool gets too powerful (we saw that back in 2014/5).
In phase 0 of eth 2.0 staked ETH will not be transferable which means that once you commit, you commit for a long duration. You can’t switch to a different exchange offering staking if you wish.
Another difference is that in a mining pool, miners still control their own mining equipment where in staking whoever controls the private keys controls the validator.
Technology comes to the rescue once again in the form of decentralised and trustless staking pools. The idea is to construct a validator which its private key act as a multi-signature wallet with a consensus mechanism built on-top of it. For the pool to operate as an active validator they collectively need a supermajority of the participants to sign on every duty the validator gets on the beacon-chain.
The consensus mechanism is there to coordinate between the participants, penalise noncooperative and even slash malicious participants.
A network of such trustless pools (each for every validator) could come together into a network that connects individuals (in a trustless way) together to form a pool and also provide liquidity of such participants to pools.
Staking is shaping to be an important financial primitive in the blockchain industry, kind of like bonds are in traditional finance. An instrument of low risk with predicted revenue for when you don’t need your assets to be immediately liquid.
Unlike bonds, staking has a huge additional functionality which is securing a blockchain.
In times like these where a global epidemic creates a snowball of financial collapse, blockchain could play a never before possible role of a true alternative to traditional markets.
A powerful and trustless ethereum 2.0 services are a necessary condition for ethereum to take its place on world stage as a futuristic financial infrastrucutre.