Why social penalty is the right choice in PoS?
Original title: "The Case for Social Slashing"
Original compilation: Kxp, BlockBeats
Original compilation: Kxp, BlockBeats
image description
Courtesy of Denis Pourteaux
Do you enjoy studying the philosophy of Crypto? Do you enjoy wrestling with moral dilemmas and are willing to challenge yourself to discover the right answer when all the options are difficult?
If so, then you're in luck.
In Proof of Stake, the ethical dilemma of social slashing is one of the most interesting conundrums in Crypto philosophy right now. In this post, I want to show you that if you care about Ethereum, social penalty is the only right thing to do, and why we can't just drop Proof of Stake because of this conundrum.
Background
On August 8, 2022, the U.S. Department of the Treasury added Tornado Cash addresses on Ethereum to the OFAC SDN list. A few days later, Tornado Cash developer Alexey Pertsev was jailed in the Netherlands.
As a result, DeFi apps like Aave and Oasis immediately began blocking sanctioned addresses from using their web interfaces.
Some smart minds decided to “pollute” the wallets of industry leaders and influencers with sanctioned funds to ensure that the true impact of actions taken by these groups doesn’t get lost in the community.
One of the biggest supporters of DeFi can't use DeFi because the US authority updated a blog post?
However, this catastrophe must be a lot of fun in the eyes of the Bitcoin community, because they simply don't believe that Ethereum's "DeFi" can be both decentralized and censorship-resistant.
Even so, it's not the censorship front end itself that really kills. The great thing about DeFi is that anyone, anywhere can host a website and interact with Ethereum's underlying smart contract system.
That’s the sad thing about sanctions: In practice, American authoritarianism does little to stop North Korean hacking groups and just makes life harder for ordinary people.
TRM Labsis an (un)popular company that has helped many DeFi protocols comply with sanctions by providing an API with a list of banned addresses.
If censorship just happens on some fronts, the industry will eventually find frictionless ways for those unfortunate enough to be placed on sanctions lists to circumvent these restrictions.
Things can go very badly, though, when Ethereum’s internal processes are also subject to scrutiny.
Today, most miners (>90%) outsource block building to Flashbots, which helps miners aggregate profitable transactions to mine. Flashbots decided to expedite the open sourcing of its relay in response to concerns that Flashbots would gate non-OFAC compliant transactions, or even prevent them from entering the blockchain.
After Ethereum starts using proof of stake next month, stakers (validators) will have the power to decide what goes on or goes on the blockchain. Until PBS arrives, they should be in charge of deciding which block building method to use.
It's clear that Coinbase will follow the law, but what impact will that have?
It is estimated that Coinbase controls 13.2% of staking, if not more. If you're wondering why Lido validators are not unified in this graph, it's because Lido consists of a coalition of validators, and the legend separates them individually. Lido cannot enforce how specific validators run their nodes, but after the withdrawal function is enabled in the Shanghai upgrade, Lido DAO (LDO Token holders) can remove those validators who fail to perform according to the DAO's wishes. If aggregated, Lido's total share would be 31.1%.
Because of this, these comments from Coinbase CEO Brian Armstrong serve as a sobering reminder that many validators are effectively controlled by regulated entities that must comply with U.S. regulations.
So, what's the problem here?
One of the core functions of blockchains like Ethereum is to provide neutrality and censorship resistance, which is why we still use them even though they are sometimes slow and expensive. So, if anything threatens censorship resistance, it also threatens the very foundation of these blockchains.
Currently we can exit the validator group on Ethereum, you can opt out before the Shanghai hard fork enables withdrawals. That way, you neither lose ETH due to slashing, nor are you penalized for inactivity. The problem is that all exits need to go through an exit queue, which is finite, so even if Coinbase wanted to, it might take 1-2 months to unstake all their ETH.
These days, it is nothing new for individual miners to decide not to include certain transactions in the blockchain. In fact, Bitcoin mining poolsMarathonIt has been used in the past to mine "OFAC compliant blocks". Also, the Ethermine pool has responded to the recent OFAC addition and is now reviewing Tornado Cash transactions on Ethereum.
While this situation is somewhat concerning, we do not consider it an "attack" on the system unless miners or validators commit to refactoring to remove valid but non-OFAC-compliant blocks from the blockchain . Currently, Marathon doesn't have nearly enough hashrate for such a censorship attack, so we don't have to worry too much about censorship yet.
bad situation
At present, many projects are making the situation of Ethereum worse, so people can't wait to find a solution:
1. Unlike previous sanctions that only targeted individuals, the authority of the United States included smart contract addresses in the OFAC sanctions list for the first time. Coupled with the news of the arrest in the Netherlands of former Tornado Cash developer Alexey Pertsev, one can't help feeling that the authorities are stepping up their intervention.
2. Many teams developing DeFi applications (along with Ethermine mining pools) responded quickly to these sanctions, and according to some, they even had a tendency to "overreact".
3. With the merger completed, Ethereum will replace all miners with validators in a month, but the composition of these validators and their stance on OFAC compliance are not known.
4. An inherent flaw in the proof-of-stake mechanism is that regulated custodian entities such as Coinbase, Kraken, and Binance play too many important roles in the mechanism.
5. Ethereum will focus on ensuring the security of proof of rights and interests during design, so it will be difficult for us to release a large number of ETH pledges in a short period of time. For a large staker like Coinbase, it will take at least 1 to 2 months to withdraw from a group of validators (this is not the same issue as the completion of the Shanghai hard fork, and many people mistakenly regard it as the first problem).
6. There are concerns that "putting signatures proposed by other participants into non-OFAC-compliant blocks" in Proof of Stake is better than "hashing the chain tip" in Proof of Work. Logical or not, regulated entities may be less willing to sign non-OFAC-compliant blocks during the proof-of-stake proof-of-stake process than miners who are required to mine on the latest chain tip in proof-of-work.
It must be emphasized that point 6 is only speculation. Regulators have so far given no signal that OFAC compliance should involve changing the behavior of validators such that the order of blocks in the blockchain can be manipulated.
Still, there are uncertainties, and fears of overextension are not unfounded. If Ethereum got into this situation only because it was clamped by OFAC regulations during the merger process, and the network experienced 1-2 months of actual regulation in a state of chaos, then this must be a big blot on the history of the Ethereum network, It’s also a bad start to overdoing the proof-of-stake.
Furthermore, if the censorship stops simply because Coinbase "chooses" out of their staking to respect the values of the Ethereum community, then it seems that Ethereum's censorship resistance is not credible, because it still obeys the orders of regulated corporate entities, which cannot be claimed. for censorship resistance.
Our Secret Weapon - Proof of Stake
When Andreas Antonopoulos was asked what would we do if a national player controlled 51% of the hash rate and used it to destroy Bitcoin? That was one of the best responses I've ever heard to an audience question.
The threat of doing away with Proof-of-Work and starting the entire BitcoinASIC industry from scratch, serving everyone, sounds extreme, even far-fetched, but it can also be formulated as a logical plan that is critical to anyone trying to attack Bitcoin. It is a powerful deterrent to anyone. This is a mutually assured destruction mechanism that forms a Nash equilibrium between attackers and defenders.
In my personal opinion, this is a prerequisite for building a secure and censorship-resistant blockchain.
Vitalik released a video on proof of stake, the main content of which is:
For as long as I've been interested in Ethereum, this asymmetric advantage of the defender, even compared to PoW, has been one of the key motivations that I think proof-of-stake is worth digging into. Also, if the second largest Crypto is willing to use proof of stake, it must be a good thing.
Vitalik's description of the advantages of PoS certainly seems correct to me, but he ignores two important things. Proof of rights and interests also needs to be discussed in the context of the entire Ethereum, and cannot be separated separately:
1. DeFi in Ethereum has more external dependencies (oracles, multi-signature sidechains, L2 sequencers, Stablecoins) than non-DeFi chains. In a legal sense, it's hard for them to come along with a non-OFAC-compliant Ethereum fork, even if the community wanted to. This shows that Ethereum's UASF fork "doesn't work."
2. Principal-agent problem: When the "attacker" in this case is an entity like Coinbase, the burned money is not Coinbase's own, but pledged by institutional customers and retail investors through Coinbase's escrow pledge service billions of dollars. Therefore, Ethereum's UASF fork is still "unfair".
Solving Crypto's Ethical Conundrum
What follows is a discussion of the above ethical dilemmas and a counterargument.
Ethereum's UASF Fork Is 'Not Fair'
If this action is taken, then EthereumUASF will likely end up hurting a group of customers who staked on Coinbase. In my opinion, there's really nothing unfair or unusual about this, or even any difference from PoW:
1. After the merger, Ethereum’s supply inflation rate is expected to be 0% or even lower. Unstaked ETH will be less diluted than Bitcoin, and you won't feel "stressed" about staking. Those who participate in staking through staking services are not innocent, and they hand over valuable resources to potential attackers for profit. All stakers, including individual stakers as well as joint stakers, are responsible for understanding the risks involved in staking.
2. Most people know that if Coinbase uses their pledge for secondary consumption, then it must be punished according to the agreement. What is certain is that whether Coinbase did it through negligence or on purpose, it and its customers will be punished. Even if the attack they were involved in was censorship, the situation shouldn't be any different. Any subject involved in deliberate censorship should be punished, and this process should be completed automatically, but now due to practical and technical reasons, it still needs the assistance of off-chain coordination. In my view, scrutinizing such behavior is not enough to change the moral bar.
3. There is also a principal-agent problem in proof of work. Since mining pools are notoriously easy to reconfigure, we can ignore them for now, Blockstream's hosted mining creates a similar situation for miners. It's also a more "convenient" form of mining and costs less, but it will also lead to the principal-agent problem with dire consequences if Blockstream is forced to do anything unpleasant on behalf of authority or other attackers . Blockstream isn’t the only one offering these services either, they are sprawling. The whole process is opaque, and you may not even know it's happening.
4. If the system uses proof-of-work, and miners participate in this review, then the defense mechanism will drop the proof-of-work. This behavior is not a good thing for everyone, and people's hashing devices will become useless overnight. If this was Bitcoin, it would be billions of dollars lost to innocent people. Coinbas stakers played at least one role in the conspiracy by greedily funding a participant unlikely to maintain the network.
If these arguments aren't enough to get you thinking about the problem from a different angle, consider the following point of view. Proof-of-work and proof-of-stake are different mechanisms for resisting authority control, and the interesting thing about proof-of-stake is that it at least gives the authority a reason to solve this problem—they can’t play the “environment” card against it. This, combined with the asymmetrical advantage we just explained, makes "proof of stake" and "proof of work" have different "defensive properties". Instead of betting on just one, we will use both mechanisms to fight authority.
Ethereum's UASF Fork 'Not Working'
There is no doubt that UASF is more difficult to implement in Ethereum due to its reliance on DeFi (oracles, multi-signature sidechains, L2 sequencers, Stablecoin), although this has nothing to do with PoS, it still needs to be solved.
However, I don't think UASF will fail with these dependencies. While many validators are now reviewing the base layer, this does not mean that every oracle or stablecoin issuer needs to drop everything and accept the OFAC chain. Yes, maybe USDC will support OFAC, but will USDT as well? I have yet to see US authorities actually forcing Tether to take a hand on anything.
In either case, there needs to be a coordinated delay before the OFAC chain starts. During this time, you have time to unwind any DeFi positions involving USDC and any other stablecoins that have been marked as supporting the OFAC chain, and redeem all USDC. You can also withdraw from oracle systems that do not support your blockchain after a fork.
While this is bound to cause confusion, especially for those who for whatever reason don't have the time to adjust their positions, it's sure to end up being less dramatic than you might think.
Ultimately, such chain splits will be resolved by the market. I'm not saying Bitcoin's UASF is comparable, but previously when Bitcoin's Segwit2x fork rebel Bitcoin UASF fork was priced on Bitfinex's futures market, the latter retained 85% of its value while the former only gained 15%. In my opinion, this ultimately led to the failure of Segwit2x, and it happened in the futures market even before the moment of the fork.
87% choose to support Ethereum UASF over OFAC fork
Who will help develop the OFAC fork? This man will not be Vitalik
final argument
My final point is that it's more likely that the OFAC chain actually won't work.
First, consider that all validators on the OFAC chain are vulnerable to DDoS attacks to some extent. If you submit a long, complex transaction and make an unexpected call to a sanctioned address at the end of the transaction, the transaction will need to be rejected and validators will not be able to charge any gas fees for it. This allows any user to abuse the validator's computing resources.
To get around this, validators can provide protection by setting up filters and make it more expensive for attackers to send spam, but the cleanest solution is probably to change the code so that they charge for all invalid and sanctioned transactions.
Such a change not only requires the participation of hard forks, but also requires a lot of work. But it would be nice for OFAC validators to coordinate their review fork into a hard fork, since protections need to be rebuilt between this chain and the neutral chain. OFAC validators may want to focus their efforts on censorship attacks, otherwise if individual validators start actively censoring, other validators may be penalized for inactivity.
Also, who will help maintain this OFAC client? I highly recommend you listen to last week's All Core developers conference call, where Geth developer Marius Van Der Wijden made the following observations:
If we allow censorship of user transactions on the network, we have basically failed.
If we start allowing users to be censored on Ethereum then the whole thing will lose its meaning and I'll leave the ecosystem for something else that can provide that kind of assurance - I think a lot of people have the same experience as me same idea.
I think censorship resistance is the overriding goal of Ethereum and the blockchain space as a whole, so if we compromise on this, there is nothing much to do in my opinion.
I suspect they couldn't even get a client to land successfully. Maybe a particularly good Geth developer will stay on the OFAC team and leave some "accidental" bugs in it?
Also, who wants to go to an OFAC meeting? Do you want to?
It doesn't take us too much to think that the OFAC chain is basically a dead end. Otherwise, how do you think the OFAC chain should work? Should all validators agree to review a list of addresses? Can this list include all sanctions lists of all countries? If everyone wants to sanction the other, how are you going to come to a consensus?
If you want, you can do a US OFAC chain and a Chinese CCP chain. But all these fragmented chains will have to compete with Ethereum, which tends to have great conferences and strong developers.
in conclusion
in conclusion
We may only have one chance to get Ethereum on track, and that chance is not the OFAC chain. If you support the UASF fork (which is the only viable option), you will potentially help prevent actors like Coinbase from staking if they feel they have to participate in base layer censorship.
We don't have to take the risk of losing all the assets of our customers for the UASF fork. If you are a large staker, it is wiser to exit as quickly as possible (1-2 months).
Brian's response comes a day after the vote to cut Coinbase's funds closed, with a majority voting in favor, including Vitalik, Bankless hosts Ryan & David, Anthony Sassano, Larry Cermak and Polychain Olaf among others. Out a support ticket.
We can get rid of these entities that threaten the neutrality of our platform, and we have every opportunity to build a better future for Ethereum. This includes preparing the code for a UASF-ready consensus client and being fully prepared as a community. You can discuss this issue with peers who also support Ethereum, so as to determine your position.
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