Don't overload Ethereum's consensus

2023 May 21 See all posts

Don't overload Ethereum's consensus

Special thanks to Karl Floersch and Justin Drake for feedback and review

The Ethereum network's consensus is one of the most highly secured cryptoeconomic systems out there. 18 million ETH (~$34 billion) worth of validators finalize a block every 6.4 minutes, running many different implementations of the protocol for redundancy. And if the cryptoeconomic consensus fails, whether due to a bug or an intentional 51% attack, a vast community of many thousands of developers and many more users are watching carefully to make sure the chain recovers correctly. Once the chain recovers, protocol rules ensure that attackers will likely be heavily penalized.

Over the years there have been a number of ideas, usually at the thought experiment stage, to also use the Ethereum validator set, and perhaps even the Ethereum social consensus, for other purposes:

The purpose of this post will be to explain in detail the argument why, in my view, a certain subset of these techniques brings high systemic risks to the ecosystem and should be discouraged and resisted.

These proposals are generally made in a well-intentioned way, and so the goal is not to focus on individuals or projects; rather, the goal is to focus on techniques. The general rule of thumb that this post will attempt to defend is as follows: dual-use of validator staked ETH, while it has some risks, is fundamentally fine, but attempting to "recruit" Ethereum social consensus for your application's own purposes is not.

Examples of the distinction between re-using validators (low-risk) and overloading social consensus (high-risk)

If you're designing a protocol where, even if everything completely breaks, the losses are kept contained to the validators and users who opted in to participating in and using your protocol, this is low-risk. If, on the other hand, you have the intent to rope in the broader Ethereum ecosystem social consensus to fork or reorg to solve your problems, this is high-risk, and I argue that we should strongly resist all attempts to create such expectations.

A middle ground is situations that start off in the low-risk category but give their participants incentives to slide into the higher-risk category; SchellingCoin-style techniques, especially mechanisms with heavy penalties for deviating from the majority, are a major example.

So what's so wrong with stretching Ethereum consensus, anyway?

It is the year 2025. Frustrated with the existing options, a group has decided to make a new ETH/USD price oracle, which works by allowing validators to vote on the price every hour. If a validator votes, they would be unconditionally rewarded with a portion of fees from the system. But soon participants became lazy: they connected to centralized APIs, and when those APIs got cyber-attacked, they either dropped out or started reporting false values. To solve this, incentives were introduced: the oracle also votes retrospectively on the price one week ago, and if your (real time or retrospective) vote is more than 1% away from the median retrospective vote, you are heavily penalized, with the penalty going to those who voted "correctly".

Within a year, over 90% of validators are participating. Someone asked: what if Lido bands together with a few other large stakers to 51% attack the vote, forcing through a fake ETH/USD price value, extracting heavy penalties from everyone who does not participate in the attack? The oracle's proponents, at this point heavily invested in the scheme, reply: well if that happens, Ethereum will surely fork to kick the bad guys out.

At first, the scheme is limited to ETH/USD, and it appears resilient and stable. But over the years, other indices get added: ETH/EUR, ETH/CNY, and eventually rates for all countries in the G20.

But in 2034, things start to go wrong. Brazil has an unexpectedly severe political crisis, leading to a disputed election. One political party ends up in control of the capital and 75% of the country, but another party ends up in control of some northern areas. Major Western media argue that the northern party is clearly the legitimate winner because it acted legally and the southern party acted illegally (and by the way are fascist). Indian and Chinese official sources, and Elon Musk, argue that the southern party has actual control of most of the country, and the international community should not try to be a world police and should instead accept the outcome.

By this point, Brazil has a CBDC, which splits into two forks: the (northern) BRL-N, and the (southern) BRL-S. When voting in the oracle, 60% of Ethereum stakers provide the ETH/BRL-S rate. Major community leaders and businesses decry the stakers' craven capitulation to fascism, and propose to fork the chain to only include the "good stakers" providing the ETH/BRL-N rate, and drain the other stakers' balances to near-zero. Within their social media bubble, they believe that they will clearly win. However, once the fork hits, the BRL-S side proves unexpectedly strong. What they expected to be a landslide instead proves to be pretty much a 50-50 community split.

At this point, the two sides are in their two separate universes with their two chains, with no practical way of coming back together. Ethereum, a global permissionless platform created in part to be a refuge from nations and geopolitics, instead ends up cleaved in half by any one of the twenty G20 member states having an unexpectedly severe internal issue.

That's a nice scifi story you got there. Could even make a good movie. But what can we actually learn from it?

A blockchain's "purity", in the sense of it being a purely mathematical construct that attempts to come to consensus only on purely mathematical things, is a huge advantage. As soon as a blockchain tries to "hook in" to the outside world, the outside world's conflicts start to impact on the blockchain too. Given a sufficiently extreme political event - in fact, not that extreme a political event, given that the above story was basically a pastiche of events that have actually happened in various major (>25m population) countries all within the past decade - even something as benign as a currency oracle could tear the community apart.

Here are a few more possible scenarios:

But more importantly, I'd argue that there is a Schelling fence at play: once a blockchain starts incorporating real-world price indices as a layer-1 protocol feature, it could easily succumb to interpreting more and more real-world information. Introducing layer-1 price indices also expands the blockchain's legal attack surface: instead of being just a neutral technical platform, it becomes much more explicitly a financial tool.

What about risks from examples other than price indices?

Any expansion of the "duties" of Ethereum's consensus increases the costs, complexities and risks of running a validator. Validators become required to take on the human effort of paying attention and running and updating additional software to make sure that they are acting correctly according to whatever other protocols are being introduced. Other communities gain the ability to externalize their dispute resolution needs onto the Ethereum community. Validators and the Ethereum community as a whole become forced to make far more decisions, each of which has some risk of causing a community split. Even if there is no split, the desire to avoid such pressure creates additional incentives to externalize the decisions to centralized entities through stake-pooling.

The possibility of a split would also greatly strengthen perverse too-big-to-fail mechanics. There are so many layer-2 and application-layer projects on Ethereum that it would be impractical for Ethereum social consensus to be willing to fork to solve all of their problems. Hence, larger projects would inevitably get a larger chance of getting a bailout than smaller ones. This would in turn lead to larger projects getting a moat: would you rather have your coins on Arbitrum or Optimism, where if something goes wrong Ethereum will fork to save the day, or on Taiko, where because it's smaller (and non-Western, hence less socially connected to core dev circles), an L1-backed rescue is much less likely?

But bugs are a risk, and we need better oracles. So what should we do?

The best solutions to these problems are, in my view, case-by-case, because the various problems are inherently so different from each other. Some solutions include:


Blockchain communities' social consensus is a fragile thing. It's necessary - because upgrades happen, bugs happen, and 51% attacks are always a possibility - but because it has such a high risk of causing chain splits, in mature communities it should be used sparingly. There is a natural urge to try to extend the blockchain's core with more and more functionality, because the blockchain's core has the largest economic weight and the largest community watching it, but each such extention makes the core itself more fragile.

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. It is natural for application-layer projects to attempt such a strategy, and indeed such ideas are often simply conceived without appreciation of the risks, but its result can easily become very misaligned with the goals of the community as a whole. Such a process has no limiting principle, and could easily lead to a blockchain community having more and more "mandates" over time, pushing it into an uncomfortable choice between a high yearly risk of splitting and some kind of de-facto formalized bureaucracy that has ultimate control of the chain.

We should instead preserve the chain's minimalism, support uses of re-staking that do not look like slippery slopes to extending the role of Ethereum consensus, and help developers find alternate strategies to achieve their security goals.