During a session at the ETHTaipei event, Vitalik Buterin, a co-founder of Ethereum, presented his perspective on why Rainbow Staking could address the mounting concerns regarding centralization in staking.
He clarified that the issue of centralization concerning staking on the Ethereum blockchain revolves around two main areas: traditional staking practices and the emergence of liquid staked tokens.
Staking refers to the process where users lock up their cryptocurrency holdings to support the network’s operations and, in return, receive rewards.
Liquid staked tokens are a form of staked assets that are tradeable and can be used in various DeFi protocols while still contributing to network security.
Buterin believes that relying more on staking, whether traditional or liquid, is a problem for Ethereum’s goal of staying decentralized. One of the primary concerns Buterin raises is the lack of diversity in staking participants, particularly the scarcity of solo stakers.
Solo stakers are individuals who operate their network nodes and directly participate in network validation and consensus. However, Buterin noted that there is a significant shortage of such participants on the Ethereum network.
He attributes this shortfall to two main factors: technical hurdles and financial constraints. The technical challenges involve the complexities of running a node, which requires technical expertise and resources.
Operating a node involves maintaining the network software, ensuring uptime, and managing security measures, all of which can be daunting tasks for individual users.
Financial constraints also play a significant role in limiting the number of solo stakers on Ethereum. To become a validator and participate in staking directly, users typically need to stake a minimum amount of cryptocurrency.
In Ethereum’s case, this requirement is currently set at 32 ETH. This sizable investment can be prohibitive for many users, especially considering the fluctuating value of ETH and the potential risks involved in staking.
Rainbow staking
To solve this problem, the cofounder introduced Rainbow Staking as a potential solution to address these centralization apprehensions. “The idea here is that you explicitly split up into two kinds of staking, and you call it heavy staking and light staking,” Buterin explained.
In this arrangement, heavy staking involves validators who are subject to penalties for misbehavior, meaning their stakes can be slashed.
These validators sign off on every slot in the blockchain. On the other hand, light staking doesn’t carry the risk of slashing penalties and is chosen to sign slots through a lottery system.
He added that the goal is to clearly distinguish between these two types of staking and possibly mandate that both heavy and light stakers approve a block for it to be finalized. This approach aims to combine the security benefits of both heavy and light staking methods.
Rainbow Staking is crafted to prevent one dominant liquid staked token from replacing ETH as Ethereum’s main currency. It also seeks to encourage more people to participate in solo staking by making it economically rewarding.
Conversely, Buterin also noted that more research and development are needed before Rainbow Staking can be fully integrated into Ethereum’s staking system in the long run.
He said that the most important issues regarding Rainbow Staking are not just technical but philosophical.
He stressed the importance of understanding the underlying purpose behind enabling individuals who hold Ethereum but are not actively participating in securing the network to receive rewards still.
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