Not in detail, no. But at a high level. The management of various crypto networks varies by the specific currency. This particular risk is probably not a risk to all currencies.
It’s more of a suggestion based on watching history. In an unregulated market, those with the biggest stakes tend to make the rules - and make them in their own favor. There isn’t a whole lot of regulation in the crypto market - certainly not when compared to the stock and bond markets.
Getting back to your original comment to which I was replying: the more you stake the bigger your chances to become a validator. I’m translating that to mean the more you have invested in the specific currency, the better your chances of gaining some control over the policies and procedures of the currency.
Given the relatively small circulation of most cryptos, and the ability of things like hedge funds or sovereign wealth funds to raise tremendous amounts of capital, it is not at all inconceivable that a large entity could corner the market on some particular crypto. And they’d only do that for their own benefit, not for the benefit of anyone else. That is the nature of these entities. Pretty much sociopathy unchained.
Ok Thanks Peter, what I understand is that the stakers (validators) haven’t any control over the policies and procedures. What they get is interest on their stakes. Many of these validators are made up with many investors and the validator pays them an interest, after deducting a fee for their management, for the use of their Ethereum.
I took a couple of minutes (literally just 2 or 3 minutes) to find out what staking is on Etherium. If you have 32 Etherium, you can “stake” those and become a validator. A validator just validates things (not very well defined, so I won’t try) on the blockchain. One Etherium is around $1300 at the moment, so it’s something north of $40k. All you need is some kind of a computer (apparently even a smart phone is good enough) connected to the internet 24/7. Then you run a program on it to validate that nebulous “stuff”.
In exchange, you get “rewards”. Those rewards are never specified, but I would hazard a guess it’s more ETH.
That’s roughly what I see also.
What I didn’t see is what that “reward” rate is. Is it like interest on your stake? Is it a payment per validation? Something else?
Here’s the potential for misuse - that’s probably OK with ETH in terms of being a validator. If the reward is more like interest - the bigger your stake, the bigger the reward - those rewards dilute the value of the remaining ETH held by non-stake holders. So the biggest stake holders get more ETH added to their accounts, and that makes all ETH worth just a little bit less. (See stock compensation for similar issues)
But here’s the bigger issue. Do you really think that large ETH holders don’t have any sway over policies and procedures? If you do, I have this nice bridge for sale at a great price!
The single largest ETH holder has almost 12% of all ETH outstanding. The next 6 combined have another 11+%. Do you really think these holders don’t have any power over policies and procedures? They may not have it on paper, but they can certainly exercise power by threatening to sell or leave.
Think of it as interest. You stake ETH and get a certain APR (in ETH) in return. The interest rate is not fixed and will vary by for example the total amount of ETH being staked to run nodes. The system is designed to reach an equilibrium. Simplified, it’s like a fixed amount of ETH available to issue to nodes for participating and running the network. Fewer validator nodes online means higher APR, which incentives participation up to a point where the the risk/reward gets less attractive.
Rewards have a dilutive effect, but staked ETH reduces the effective available supply. In any case, the net effect applies to everyone.
Note that this has been many years in the making. Proof of Stake ain’t no funky thing invented yesterday. Nodes “execute” and validate transactions, and by design each other. A stake is what it sounds it sounds like: you put something (of value) at stake - i.e. that can be lost if you don’t behave. You can get penalized for being offline and verifying wrong transactions. You could stake a billion for some kind of attack if you want, but well… stakes would be high.
Interesting! What kind of bridge? But don’t try to sell me a barge bridge as “nice low profile steel bridge”. Already fallen for that one once. Might have sway long term, but think of ETH as algorithms and protocols that requires a lot of research and consensus to be able to change. Policies and procedures defined algorithmically. There’s no central “stash” of ETH to hand out to nodes - the way it works is built-in and nodes need to speak the same language.
By the way, you don’t need 32 ETH to stake. Only if you intend to run your own node in your garage or something. Many exchanges offer staking for example - i.e. someone else running is running the nodes and take a piece of the pie in return.
Traditionally, it’s either the London Bridge or the Brooklyn Bridge, depending on which financial center you happen to be in at the moment.
This particular way of validation of transactions is not hack proof. You say that validators check each other. What if a few validators collude to alter the validation programming to the benefit of the group? Or what if one individual (or small group) sets themselves up as multiple validators and then does the same. The anonymity that crypto prides itself on would make it hard to tell if multiple accounts are held by a single individual or entity.
There’s lots of talk about “decentralized” and “algorithm” and “built-in”. People with lots of money and no one looking over their shoulder have historically found a way to tilt the odds in their favor. Right now, there isn’t much regulation of crypto currencies. And there probably won’t be until someone takes advantage of the lack of regulation. I don’t know if it will be ETH. And I don’t know when. But I’d put the odds significantly over 50% that some crypto will be hacked in some way by some rich group in the next 10 years that will make big headlines and force various federal and state regulators to take some action.
This particular validation process does not inspire a lot of confidence in me.
Hmmm… How much for the London Bridge? Thing is, I already bought the Brooklyn Bridge and I’m not happy with it. It came with a guy that simply refuses to leave.
Disclosure: I like Ethereum when seen as a form of distributed computing that can solve real world problems. However, I’m not very fond of everything being turned into speculative mania with pump-n-dump schemes, leverage, futures, options and whatnot. I’m not invested in ETH or any other crypto, and happy to watch the sticks and stones factions from a safe distance.
(There’s a remote possibility that I’m invested in an unknown amount of Bitcoin. I read the original white paper and I have faint memory of trying it out when it arrived, but quickly got tired of having something running just for the hope of gaining a buck.)
Nothing is hack proof. I’m a computer scientist and security expert, and have seen and done a lot funky things since the dawn of internet. Released my first anti-virus tool in 199x, simply because I got so fed up with a virus pestering floppy disks and hard drives that I decided to reverse engineer it myself. I have air gapped computers filled with a minor zoo of nasty stuff, including state actor malware designed to attack critical infrastructure. The state of things are quite depressing when seen from my eyes, and feels like it’s only getting worse.
Anyway, I get what your saying. There’s a lot of fancy talk. When I talk about algorithm, built-in and so on, however, it’s me trying to dumb it down. Couldn’t find a good explainer that I would vouch for.
In essence, Proof of Work, Proof of Stake and Proof of Space are approaches to address the problem of Consensus to mitigate the Sybil attack threat, i.e. kinda the threat you’re describing.
PoW is inherently easier to describe and define than PoS. The devil is in the details, though. Lots of cryptos have crashed and burned, regardless of type of consensus mechanism.
At the time being, I worry less about the “validation process” for one simple reason: It makes little sense trying to crack the consensus algorithm when there are tons of other means that are trivial in comparison.
Not having a lot of confidence is generally a good idea.
