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Don't count on CeFi to save Ethereum

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PoS is actually worse than PoW in terms of censorship resistance.

Original title: "Don't count on CeFi to protect the Ethereum network"

Original author: Nothing Research

Original compilation: Jack(0x137), BlockBeats

Nothing is absolute, we must evaluate the pros and cons of Ethereum PoS and PoW from different angles. But if we compare security with decentralization, it’s like comparing apples to oranges, and the discussion will be meaningless.

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We can think about censorship resistance from at least two perspectives:

1. If it is censored, how long will your transaction be blocked from going to the chain?

2. If it is censored, can you guarantee that your transaction can still be packaged on the chain in the future?

And in order to prevent 51% attack, let us consider the following two aspects:

1. How much does it cost to hack?

2. How likely are they to rent enough mining equipment?

For ethereum merger we should not simply say decentralization and security level of PoS "Higher" or "lower" than PoW, the scope of these questions is too broad. So, let's dissect them one by one.

First of all, let’s talk about security. There is no doubt that the cost of attack under PoS has indeed become higher. This has been discussed many times. If you try to attack a PoW network with your insane hash rate, your actual cost is just your electricity bill. Attacking the network won't change your hashrate, especially when there is a high percentage of GPU miners on the market. Even if your attack fails, you can dismantle the crypto mining facility and sell those graphics cards.

But if you attack the PoS network, you risk losing all your pledged ETH. This increases the cost of the attack hundreds of times. We must be aware that the cost of attacking PoW is temporary, whereas with PoS it is permanent.

However, PoS is a little worse off when it comes to renting mining rigs. Given the physical nature of PoW mining, miners are scattered all over the world, making it difficult for you to rent 51% of the total computing power of ETH. This is not a cost issue, but a "one or zero" issue.

PoS is different. There are currently 120 million ETH in circulation, of which more than 13 million are staked on the beacon chain. In theory, as long as you can "borrow" 5% of the circulating ETH, you can carry out a 51% attack. Of course, I'm not saying it's easy, it's still very difficult, but not as hard as PoW.

In a centralized world, lending may require some collateral, or may rely on reputation , or even power, such as regulators, so here comes our second issue - censorship resistance, which is part of the characteristics of decentralization.

At least 2/3 of the Ethereum beacon chain nodes are under the jurisdiction of US regulators , which may result in compromised censorship resistance. Discussion on this issue started with this tweet:

After the merger, the top 4 entities are Lido, Coinbase, Kraken and Binance, the total accounted for more than 55%.

Let's take Tornado Cash as an example. If US regulations require 2/3 of mining pools to ban a transaction, it will take longer for Tornado-related transactions to get on-chain. It used to take about 12 seconds, but in the future it could take 30+ seconds, or even a minute or two if you're unlucky.

From the curve below, it can be seen that the probability of continuously banning a transaction for 1 minute is about 7%, which is a bit disappointing.

But in fact, this is not a PoS consensus problem. This is about miner changes. In the past, the top 10 mining pools in PoW accounted for 78% of the computing power. In theory, they could also collectively censor your transaction and prevent it from being uploaded to the chain.

Many of these are mining pools with a continental background, some in Russia and Central Asia. China and Russia are the few regions in the world that the United States cannot directly sanction. Therefore, censorship resistance is not about the technology, but about the location of the miners.

Today’s PoS pools, whether it’s Lido, Coinbase or Kraken, are all in the US, so strict restrictions. Although they are all making positive statements now, it is only a matter of time before regulators scrutinize illegal transactions in the future. PoS is actually worse than PoW in terms of censorship resistance.

There is another indicator to evaluate the pros and cons of PoW and PoS, which is the worst case , that is, whether you can guarantee that your transaction will at least be on-chain. Let's continue with the calculation above, if we still assume that 2/3 of the nodes are in the review state, then the probability of a transaction being on-chain within 10 blocks is still 98%. You can always find mining pools that ignore US regulatory requirements, the only thing you have to do is wait.

So what if the ruling government decides to roll back your transaction after finding out that you can always get out of sanctions by waiting longer ?

First of all, this issue is no longer within the scope of censorship resistance. It's almost like a direct attack on the network. The probability of this happening is extremely small, but not zero.

For example, a transaction related to Tornado Cash ends up on-chain through a node that is not regulated by the government. At this time, the supervisor who controls 2/3 nodes can directly fork the network, remove the block containing this transaction, and make it never go on the chain. Although they cannot delete the transaction, they can simply discard the block, which can be done in a single Echo under PoS.

In this case, some members of the Ethereum community proposed "social cuts" (Social Slashing), that is, to confiscate the ETH pledged by these nodes. However, this may lead to a new totalitarianism. Ethereum should not adopt those rules that do not exist on the blockchain.

Also, the current pool node will usually connect to MEV tools like Flashbot. However, Flashbot is also regulated. This means that transactions that do not meet regulatory requirements will not appear in the Flashbot transaction list at all, and the nodes containing these transactions will be affected. Therefore, nodes also require more MEV tools.

Last month, coinbase stood up and stated that they would rather quit the Ethereum staking business than Reluctance to censor the web to comply with sanctions. However, the pledge service is very profitable. It is estimated that the pledge annual interest rate can reach 6-8%, and the commission can be charged at 10%-20%. If Coinbase stops providing staking services, based on the 1 million ETH in their cold wallet, they will lose at least tens of thousands of ETH every year.

So this business will definitely continue. Of course, regulators will continue to monitor.

Therefore, we cannot really count on CeFi to save the Ethereum network, whether Coinbase, Lido ( Half CeFi) or Flashbot (centralized tool). Instead, we have to make technical improvements and optimizations to the chain itself. there's still a long way to go.

< p>But only in this way can we secure our Ethereum network.