What Prevents Large Validators From Taking Over Ethereum?

Proof-of-Stake critics have sounded the alarm on Ethereum’s new Proof-of-Stake consensus mechanism, claiming it makes the network susceptible to hostile network takeovers. However, Ethereum’s new system contains a failsafe to mitigate this risk and allows users to burn the funds of any attacker attempting to take control of the blockchain.

Ethereum’s Vulnerability to 51% Attacks

Ethereum’s recent switch away from Proof-of-Work has raised questions about the network’s ability to fend off attacks.

On September 15, Ethereum successfully upgraded its consensus mechanism to Proof-of-Stake. Among other things, the event, now known in the crypto community as the “Merge,” passed block production duties from miners to validators. Contrary to miners, which use specialized hardware, validators only need to stake 32 ETH to gain the right to process transactions.

However, some crypto community members have been quick to point out that most of Ethereum’s validating power is now in the hands of just a few entities. Data from Dune Analytics indicate that Lido, Coinbase, Kraken, and Binance account for 59.6% of the total staked ETH market share.

This high concentration of staking power has raised concerns that Ethereum may be vulnerable to 51% attacks—a term used in the crypto space to designate a hostile takeover of a blockchain by an entity (or group of entities) in control of the majority of block processing power. In other words, the worry is that large staking entities could collude to rewrite parts of Ethereum’s blockchain, change the ordering of new transactions, or censor specific blocks.

The possibility of a 51% attack became particularly salient after the U.S. government’s ban on Tornado Cash. On August 8, the U.S. Treasury Department added privacy protocol Tornado Cash to its sanctions list, arguing cybercriminals used the crypto project for money-laundering purposes. Coinbase, Kraken, Circle, and other centralized entities quickly complied with the sanctions and blacklisted Ethereum addresses associated with Tornado Cash. So what would prevent these companies from using their staking power to censor transactions on Ethereum’s base layer if the Treasury ordered them to? 

As Ethereum creator Vitalik Buterin and other developers have argued, the network still has an ace up its sleeve: the possibility of implementing user-activated soft forks (UASFs).

What Is a UASF?

A UASF is a mechanism by which a blockchain’s nodes activate a soft fork (a network update) without needing to obtain the usual support from the chain’s block producers…