Will Proof-of-Stake (PoS) Leave Ethereum in The Hands Of The Few?

Ethereum PoS

When Ethereum shifts from a proof-of-work (PoW) to a proof-of-stake (PoS) algorithm will it leave it in the hands of the few?

Nobody can doubt that PoW democratizes a network, but will a PoS consensus mechanism leave Ethereum exposed to hijacking?

Three Exchanges Hijack dPoS Network

We’ve seen the civil war that’s going on in the Steem community with its new owner Justin Sun.

After Sun bought Steem – a delegated proof-of-stake (dPoS) algorithm, he along with three exchanges started to manipulate the voting process and froze accounts on the Steem network.

To do this, Sun and the exchanges: Poloniex, Binance, and Huobi used their tokens to outmuscle the community and voted on protocol upgrades that Sun wanted in place.

Justin Sun Tron TRX

The infighting is still ongoing and the Steem community and its many content creators have moved from Steemit to Hive, a clone of Steemit.

Would PoS Ethereum Be Vulnerable To Exchange Manipulation?

The worrying thing is whether this exchange manipulation could happen to Ethereum when it evolves to a PoS algorithm.

Vitalik Buterin was quick to point out that it couldn’t happen on Ethereum, because PoS validators on Ethereum would only be there to verify blocks and not vote on protocol upgrades, but is this true.

But is Proof of Stake (PoS) vulnerable to exchange manipulation?

Three exchanges combined their tokens and voted on their ideas to get their way. Done so easily on dPoS, it is worrying actually.

PoS is different to dPoS, because it will be random stakeholders who get to verify the blocks, but when it comes to voting on protocol updates isn’t democracy the same as representative democracy?

If so, wouldn’t a PoS Ethereum be vulnerable to this kind of manipulation?

If someone wanted to change the protocol on Ethereum, they would introduce the update and every single staker could choose whether to accept the upgrade or not. Whatever the majority vote on will become the new protocol.

poloniex binance huobi

So what if these three exchanges decide to try the same thing with their ETH holdings? Instead of voting for delegates on a dPoS, their holdings would be used to outweigh the majority and their version would be voted in.

Of course it would take more than three exchanges to outmuscle the much bigger Ethereum community, but is this not a worry for when Ethereum moves to a PoS?

Exchanges Voting in Proof of Stake

No doubt, Ethereum PoS will be more decentralized than Steem dPoS, but many stakers who don’t have enough ETH to stake alone will leave theirs in an exchange, or in a staking pool, and if these exchanges were to combine it could theoretically own a majority.

Exchanges should give their customers the right to vote, but many if not most won’t bother voting, and what would an unscrupulous exchange do with the spare votes?

I think it’s pretty clear Binance, Poloniex and Huobi would use their customers votes on something that benefitted them. And if they get other exchanges on board we could end up having a version of Ethereum that a few exchanges want.

Editor’s Picks:


Justin Sun and his army of exchanges harmed the crypto space when they hijacked Steem. Some in the space will be smug that this manipulation exposed dPoS centralized nature, but it’s not good for the space at large.

And what if they were to try something like this on Ethereum? I’m not saying these exchanges would want to harm Ethereum or the cryptocurrency space at large, but in doing what they thought was right, they harmed the very notion of decentralization.

Of course dPoS is only decentralized to a degree, and nothing is completely decentralized, but it begs the question to whether Ethereum would be better remaining as a PoW network.

Author: Pete Graham

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When I came up with Ethereum, my first first thought was, 'Okay, this thing is too good to be true.' As it turned out, the core Ethereum idea was good - fundamentally, completely sound