The rushed Merge will be a fatal mistake for Ethereum
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Some Core Developers started to think they are “overpaying” for security, and that there is a need to replace Proof of Work with a cheaper alternative. The truth is that they don’t pay for anything. The rewards miners get the newly generated coins created by the chain, resulting in slight inflation on Ethereum. Inflation means that all Ethereum holders pay for security, not Ethereum Foundation or anyone else. It’s also worth noting that EIP-1559 has made the inflation near-zero by introducing the fee burn that yet, has given almost no price increase at all. That makes the security PoW provides effectively free under current network conditions.
Nonetheless, Ethereum’s executives ignored all the above and proposed “The Merge”—a plan to switch Ethereum to Proof of Stake before Ethereum 2.0, citing the “expensiveness” of Proof of Work. But they were silent about what security changes will take place if the Merge goes through.
Reminder for newbies: The merge will not make Ethereum more scalable.
Understanding the Blockchain Trilemma
There is a law in the world of Blockchain, a trilemma that says that you can cover fully only two from Decentralization, Security, and Scalability. Taking an equal amount from each corner is impossible too, as getting close to taking the same amount from each corner is exponentially harder.
In this article I will use the Fractional variant of the Blockchain Trilemma. Fractional means that it allows partial selection of three corners, thus reflecting real-world blockchains, as most of them cover the sides of the triangle partially.
Bitcoin, the first cryptocurrency, was not designed to scale. Scalability was not important at early times, as there weren’t as many users as we have in modern days. Bitcoin is secure and decentralized. Satoshi has incorporated all security features a public ledger may have. Ethereum followed the same path. The creators of Ethereum focused on creating a secure and reliable blockchain, but it didn’t scale.
Later on, cryptocurrency adoption has only grown. Fees became higher and higher, along with the need for increased TPS capacity. It was 2017 when fees momentarily exceeded $10 per transaction. The need for scalability was as high as never was before.
Increased fees led to the creation of scalability coins—EOS, TRON, Dash, and others were all about increasing TPS a single blockchain can handle. During the development of most of those projects, there was an insane amount of hype from the community. An excellent example for this would be EOS — the “Ethereum Killer,” as many termed it. There have been a lot of “Ethereum Killers,” but as you see now, none of them have succeeded.
Why you should care?
Although “Ethereum killers” scaled a lot more, they have failed because they lacked either security or decentralization—the crucial aspects of any blockchain.
Ethereum killers have suffered either Security or Decentralization to allow room for scalability, and without both of those, they have experienced an imminent failure.
The Merge is going to make Ethereum witness the same story.
What will early Merge do to Ethereum?
NOTE*: By early merge, I mean the merge that developers plan to be deploy in 2022. Ideally, the Merge (aka the switch to Proof of Stake) should be deployed along with sharding. The early merge takes away the security benefits of PoW without adding the scalability benefits of PoS, effectivelly making Ethereum worse as it will neither scale nor be secure as with PoW.*
Proof of Stake is much less secure than Proof of Work. This is a fact.
There are some studies about the PoW vs. PoS security, but almost all of them, including Vitalik Buterin’s paper, talked about the cost of attacks. At the end, they came up with conclusion that PoS will be more expensive to attack, which is completely not true.
With the current network hashrate, to get 50% of Ethereum’s network hashrate you will have to get 5 million RTX 3090 GPUs, the price of which ranges around $3000 per GPU. It will cost $15 Billion to acquire that amount of GPUs. But even if you had that much money to invest into the hardware, it would be impossible to buy them as there aren’t that many GPUs available in the entire world. It would take decades, if not centuries, to produce them. Renting them would be also impossible, as no supply reaches at least a fraction of the requiremenets.
Adding more to that, to acquire 50% of Ethereum PoS’s voting power, you will need only $12 Billion. And I’m not even talking about that the mining hardware is illiquid, and that there won’t be as much supply in the near future which the 51% attack requires. Even if you have finally ready to attack after decades of preparations, the network hashrate could be 100x of current values already.
Ethereum researchers are not talking about the consequences of the attacks made. With PoW, the worst (and the only) attack the chain may experience is the chain reorganization attack (aka 51% attack). At most, it can revert a transaction that was made during the attack. In theory, attacks like this require around 51% of the network hashrate, but realistically, the attacker would need to get more than 60% to ensure that the attack will be successful.
Unlike with PoW, with Ethereum 2.0’s proof of stake, if 66% of validators “team-up” together, they will be able to legally, without violating chain rules kick out the remaining share of validators and take the full control of block production on Ethereum. The attacker will be able to to whatever they want with the network, this includes censoring transactions, freezing (taking down) the network, arbitrarily altering the transaction ordering, and more. This also means that the attacker could blacklist all new validator registrations (of course, if at first the chain was not taken down completely), essentially taking a full control of the chain permanently, with the only solution being implementing a hard fork similar to the DAO fork that will forcefully slash the exploited validators. 66% of network validators “teaming-up” is not impossible. There could be a financial incentive to do so (e.g. to kick out the remaining 33% of validators and thus increase the profitability by 33%), or the validator keys may be leaked. Exploiting validators with vulnerabilities that allow to gain access to the validator private key is a major threat, as the validator keys is the only reqiurement to take control of a certain validator.
Decentralization becomes worse too. To stake on Ethereum, you will be required to have 32 ETH (close to $100,000 USD at the time of writing this article). This will mean that only rich people will be able to validate. With PoW, there are no requirements. If you have a gaming PC, you can start mining right away without any additional investments at all.
As you see, some massive security holes will be introduced. That is acceptable when it is a tradeoff to allow scalability, yet the early Merge is not going to incorporate it.
u/vbuterin You are welcome to join the discussion.
So what’s the point of Ethereum 2.0?
Ethereum 2.0 is meant to achieve the middle point in the Blockchain Trilemma. It will be somewhat scalable, somewhat secure, and somewhat decentralized. With Proof of Stake and further Sharding, Ethereum will lose its superior security. People who want security will move their savings to secure Proof-of-Work blockchains like Bitcoin and the coin that will capture Ethereum’s hashpower, and use L2s for micropayments if needed.
So what the rushed merge without the sharding will do?
The current position of Ethereum in the Blockchain Trilemma is Security and Decentralization. With the rushed Merge (aka Proof of Stake without Sharding), Ethereum will gain 2.0’s middle ground security and decentralization without bringing scalability for which the Proof of Stake was invented (Casper PoS is a requirement for sharding).
Core developers will effectively make Ethereum suicide if early Merge without Sharding goes through.
Below you can see Ethereum’s position in the blockchain trilemma right now (with PoW), after rushed Merge, and after the full PoS merge with sharding.
Ethereum with PoW (what we have right now):
If the rushed Merge without sharding will happen, this is how it will look like:
And the Merge with sharding will be:
Ethereum with PoW covers most of security and decentralization, but it lacks scalability as Proof of Work doesn’t scale. On the other hand, PoS allows scalability (via sharding), but it offers much worse security. PoS without sharding (2022 Early Merge plan) will have the worst coverage of the Blockchain Trilemma, as it will use less secure Proof of Stake that was made to allow scalability, but without incorporating it.
Summary
As we have learned above, the cryptocurrencies that have poor “coverage” of the Blockchain Trilemma fail inevitably. If Merge happens, Ethereum’s coverage will be one of the worst ever, making it look the same as “Ethereum Killers,” who experienced or are yet to experience failure.
Thanks for the attention, and don’t forget to share your thoughts in comments.
Appendix
Why are there almost no new projects coming with PoW?
Proof of Work is secure when it is impossible to acquire 60% of the network hashrate. When a new cryptocurrency appears, the project will be insecure during the early days until the conditions mentioned above are met. And yet, it is almost impossible to meet them while being insecure.
Cryptocurrency
