Why no validator will find it worthwhile to conduct a 51% attack on the Ethereum Network
The possibility of Ethereum Blockchain getting taken over by validators with 51% attack
The big question or worry the crypto community had with Ethereum’s Proof Of Stake Blockchain is the possibility of 51% attack.
This is because the majority(almost 60%) of the Ethereum Beacon Chain’s validation power is held together by 4 Entities - Lido(30.02%), Coinbase(14.55%), Kraken(8.27%) and Binance(6.6%).
So, what if these entities combine and attempt to take over the Ethereum Network initiating a 51% attack.
(Ah… this take over of the Ethereum Network reminds of this song, where Brain wants to take over the world -
Anyway, when an attacker manages to take over a network, they can rewrite and re-organise transactions in the Ethereum Blockchain, as they get full control of the Blockchain to do malicious activities like calling back processed transactions and stealing funds or censuring specific transactions.
(Yes this is as scary as the prospect of that Lab rat Brain taking over the world is it not?).
CEXs holding validation power poses a threat to Ethereum Blockchain being censorship resistance
Furthermore, since a significant portion of Ethereum Blockchain’s validation power is held by Cexs of the likes of Coinbase and Kraken, there is a likelihood of them acting according to what the Governments order them to. For instance, they can be pressurized by the US Treasury Department to censure addresses, transactions of particular users, entities etc.
This happened on August 8th, when the US Treasury Department sanctioned crypto mixing privacy protocol, Tornado Cash. Kraken and Coinbase conformed to these sanctions order by blacklisting those addresses that have had dealings with the Tornado Cash Protocol.
Therefore, the crypto community has been worried about Ethereum Proof of State Chain’s ability to be censorship resistant .
UASFs safeguard mechanism against malicious validators taking over the Ethereum Network
Now, ofcourse, Ethereum has transitioned into a Proof of Stake State having completed ‘The Merge’ successfully on September 15th.
The good news is that the Ethereum Proof of Stake Blockchain has a mechanism to prevent an validating Entity from taking over the Ethereum Network.
Ohh… yes, let’s hear about this mechanism shall we??
In case, a validator attempts to take over the Ethereum Network, then any node can trigger a UASFs, that’s a user-activated soft fork.
Any one from the Ethereum community(which is huge) running a node can trigger a soft fork in such an emergency situation which will temporarily take away control of the Ethereum Blockchain from the Block producers and hand them over to the nodes.
Power to burn the entire ETH stake of malicious validator with the activation of UASFs
So, the Ethereum Community holds the power to activate a UASF, triggering a network upgrade of the Ethereum network and then slashing or burning the entire ETH stake of the malicious validator that would effectively drain away the validator’s validation power.
Let’s understand this with an example shall we?
Coinbase’s stake equals at current prices about 2.67$ Billion value. So, if Coinbase censures certain transactions listening to the US Treasury Department's instructions, then any one running an Ethereum node can trigger a UASF and Coinbase’s entire ETH stake can get burned by the Ethereum Community!!!
So, any of these staking entities turning malicious and taking over the Ethereum network, will cost them high, as their entire ETH stake stands to be burned.
So now we can all breathe easy that Ethereum network has safeguards against the 51% attack with the UASF mechanism. Basically, UASF mechanism allows the minority to fight against the majority (powerful validators with a large ETH stake) from taking over the Ethereum Network!!
Lido Finance does not control staked ETH deposits as its a decentralised protocol
Also, it’s true that Lido holds 30.02% market share of staked ETH deposits in Beacon Chain, but Lido actually does not have control of those 4,229,584 staked ETH. This is because Lido uses services of 29 staking service providers so 29 different validator entities have distributed control of the staked ETH.
So, Lido is a decentralised staking protocol and it will not be easy for Lido to take control of the Ethereum Network with all the staked ETH in Lido distributed and held by 29 different validators.
Therefore, we thankfully don’t need to worry about validators taking over the Ethereum Network, even if a certain validator entity holds a majority of staked ETH, therefore having much more Block processing power than others.
What’s the use of trying to take over the Ethereum Network when it can be prevented thanks to the UASFs mechanism, that will also have the community burn the entire stake of the malicious validator?
In that note I end my article.
Thank you for being a lovely reading audience.