Vitalik Warns Against Applications Using Ethereum’s Social Consensus’ to Resolve Conflict – Crypto News

Vitalik Buterin, Ethereum’s creator, is sounding the alarm about the potential of other blockchain projects using the chain’s validators to resolve their own conflicts. The concern comes as re-staking emerges as a hot new trend.

Buterin said in a May 21 posts on his website that while using staked ETH “is fundamentally fine,” attempting to influence Ethereum validators to take actions such as forking the Ethereum blockchain to favor a certain party, is not.

“We should be wary of application-layer projects taking actions that risk increasing the ‘scope’ of blockchain consensus to anything other than verifying the core Ethereum protocol rules,” Buterin wrote.

Buterin differentiated between using Ethereum’s economic consensus and its social consensus. Economic consensus would come from making decisions purely based on the 18M ETH ($34 billion) worth of validators’ stake, while social consensus means allowing off-chain events to influence validators’ decisions.

The post uses a theoretical example of a currency price oracle for the Brazilian real that would need to decide on the correct price feed if the country were to split into two factions. In the case that validators are also split between the two camps, Ethereum cannot be expected to update its software, also known as implementing a hard fork, to kick one of the two validators off the network.

While the example was set in 2034, there could be some near-term practical implications. Projects like Eigenlayer and Ether.fi are seeking to create a market for staked ETH to be reused to provide security to other projects. Buterin sees a real threat that those projects could become powerful enough to pressure the Ethereum community to make decisions which favor a certain group.

This runs counter to the core ethos of Ethereum as a “reliably neutralnetwork which doesn’t discriminate for or against any group of users.

Dan Elitzerco-founder at Nascent, a crypto venture fund, said Buterin’s concerns are legitimate.

“Vitalik is right, there are ways that this can be done that are very safe, very reasonable,” he said. “And there are ways that this can be done that are a lot more risky.”

Elitzer has been thinking about reusing yielding accruing tokens like Lido Finance’s stETH, and DeFi tokens like those which represent deposits in lending protocols or automated market makers (AMMs), since 2019 when he wrote an articles called “Superfluid Collateral in Open Finance.”

The investor thinks the concerns about dependence on Ethereum’s social consensus are very important, but not immediately pressing, nor entirely new.

“The question is, not what will happen now, when this is kind of a new emergent dynamic in the ecosystem when we’re in a relatively calm spot,” he said.

Elitzer thinks that when the next bull market comes, and new users come pouring into crypto in search of yield, “people tend to relax some of the social consensus things and just get a little wild as they try to grab market share.”

Elitzer wrote as much in his 2019 article, which addressed the potentially adverse effects of rehypothecating tokens collateralized in DeFi protocols — “given what we know of human nature, do you really think we’ll show restraint when the possibility exists to earn an extra point of yield or pay a slightly lower rate on a loan?”

A similar dynamic is emerging with projects like Eigenlayer. Holders of liquid staking tokens like stETH, rETH, or an upstart competitor, could be incentivized to reuse their stake to bootstrap the security of another venture. Theoretically, this venture could also incentivize stakers with additional rewards, bringing them into a potentially socially contentious situation in exchange for increased yield.

An example of this would be a debate over the ‘true’ value of an Ethereum-secured price feed — if two parties have differing opinions about the value of a given asset, the Ethereum community could be roped into picking a side. And this is exactly the kind of social issue many of Ethereum’s supporters hope the blockchain can remain neutral on.

Another example would be a Layer 2 scaling solution for the Ethereum blockchain depending on the Ethereum community to rescue it through a hard fork in case of a major hack. Again, this would involve judgment calls by the community, something that Ethereum wasn’t designed to involve its validators in.

Elitzer thinks that Sreeram Kannan, the founder of the Eigenlayer, is similar to Buterin in that both take a measured approach to building blockchain-based products. Kannan released a response to Buterin’s post on Twitterwhere the Eigenlayer founder also discouraged depending on Ethereum to fork if an error happens in another application.

Elitzer added that for crypto enthusiasts in the industry for the long run, concerns like the ones Buterin raised are inevitable.

“If Ethereum and other kinds of generalized blockchains become increasingly large economic and social and political forces in the world, this is just going to be more and more likely to come up in a very, very big way from more and more potential angles.”