Analyzing the Secret Shared Validator Scheme Proposed By Ethereum


7 min read
Analyzing the Secret Shared Validator Scheme Proposed By Ethereum

Recently, a member of the Ethereum ecosystem named, 'Mara Schmeidt, published an outline for a scheme based on the Ethereum 2.0 proposed architecture titled, 'Secret Shared Validators on Ethereum 2.0'.

Link = https://medium.com/@mara.schmiedt/secret-shared-validators-on-ethereum-2-0-ea29ab380016

Ethereum is Nearly Unrecognizable at this Point

We've covered this extensively, numerous times at this point, but the shift in Ethereum's entire blockchain architecture and validation scheme appears to be little more than a thinly veiled last ditch 'Hail Mary' to transform the protocol into one that can provide an alterantive means of financial sustainability for major players in the blockchain space.

What This Means

In 2017, as Ethereum (and blockchain) began to really emerge on a mainstream stage, the ICO boom served as a primary source of income for major players (i.e., exchanges) in the blockchain space.

As the SEC began cracking down on these funding schemes, this profit scheme began to dry up - leaving large entities (i.e., exchanges) in need of an alternative method for sustainability.

IEOs and STOs were another attempt by the blockchain space (major players in it), to create a sustainable profit model for exchanges and other centralized entities that control the majority of the cash flow in blockchain.

DeFi (Decentralized Finance) appears to be the modus operandi at this present moment. Looking at ROIs for DeFi realted coins over the past three months (from the time of writing) - this one-sided pursuit becomes increasingly obvious (these comparisons & analytical comparative studies have been conducted and published in other reports located on our main blog page - librehash.org).

Assessing the 'Third-Party Staking Services on Ethereum 2.0' Proposal

The Obvious Issues Here:

A) We have to get back to the grassroots for a second - the major innovation of blockchain is the idea that there can be a seemingly autonomously functioning protocol devoid of trust requirements that also provides a self-generated, perpetual incentive for continued participation as well as natural (unforced) prisoner's dilemma-esque consequences premised on natural human motivations to deter 'bad actors' even when they're in a position to be bad actors

B) A 'stake' model entirely undermines the protocol-produced incentivization, resulting in a bastardized version of 'blockchain'.

C) While the Gini Coefficient for Bitcoin is no different than what we see among major nations today - one of Bitcoin's strengths (in terms of perceived equitability) can be found in the fact that stakeholders of the Bitcoin ecosystem that possess significant market share (i.e., Bitmain, for instance) - are unable to retain this position without constant evolution. This is due to the fact that an increase in hash rate that does not come from Bitmain, for example, represents a proportionally decreased market share for them. Also, rather than just one entity being able to chip away at this market share (like what we see with Microsoft vs. Apple, for instance) - the Bernoulli's + Poisson probabilistic block generation scheme for Bitcoin creates an environment where any increase by any entity / industry participant (i.e., miner) that is not part of Bitmain's ecosystem results in Bitmain's market share being reduced.

^^ This benefit is entirely absolved in the structure of Proof of Stake.

'Proof of Stake' is a Shift From a Verifiable Meritocracy to an Aristocracy

As mentioned in the opening paragraph of the piece:

Today, there are 120,000 Ethereum addresses that hold the minimum 32 ETH required to become a validator on the Ethereum 2.0 chain.

"But, Librehash there is also a wealth requirement to participate in mining"

This is true - however, that wealth requirement is only one of many capacities that a successful miner in the Bitcoin ecosystem must possess.

In the Proof of Stake model that Ethereum proposes, this is the only characteristic that matters for validation.

Proof of Stake Results in Immutable Chain Control

To reiterate one of the major points made above, Bitcoin's Proof of Work consensus algorithm forces the 'leader' in its mining ecosystem to engage in a perpetual, neverending 'arms race' between itself and other entities vying for a greater share of the total hash rate in an effort to increase their chances of winning the next block.

This creates an implicit (and almost, unacknowledged) motivation for miners to undertake measures in the pursuit of their goal / enhanced competitive advantage that invariably lead to a more secure blockchain protocol.

Thus, a major pain point for the protocol (that Satoshi probably mused about when designing Bitcoin) - is something that is addressed as a byproduct stemming from a bigger fixture / process in the ecosystem.

Analyzing the 'Secret Sharing' and 'Multi-Party Computation' Proposals

The relevant text from the article is re-published below for convenience:

Let's unpack these concepts, shall we?

Secret Sharing

The way that the 'secret sharing' scheme is defined in this proposal closely resembles the structure of 'Threshold Cryptography' (because that's exactly what it is).

A brief explainer breaking down 'Threshold Cryptography' (from an external, non-blockchain related source), can be found below:

A visual representation of this cryptographic scheme is provided below to help for those that are more visual-learners than textual-based:

Major Issue - Mara's Proposed Architectural Design for Ethereum 2.0's ecosystem Would Render the Benefits of Such a Cryptographic Scheme Null

This should be evident to all readers in light of the following statement that Mara made regarding the role of large exchange entities in the blockchain space.

Specifically, in the report, she proposed:

Exchanges with a large share of existing users such as Binance and Coinbase are well positioned to leverage existing customer onramps and reputation to extend existing business lines to offer eth2 staking on behalf of their users.

"On behalf of their user" means that exchanges will be able to leverage their already existing pool of customers (whom they acquired in a manner wholly unrelated to the proposed validation / staking scheme that Mara proposes here), and essentially leveraging their collective presence / activity as a means to increase each respective exchange's compulsive desire to establish a vicelike squeeze around the neck of the Ethereum protocol (in terms of market share / decision making / transparency / profit & wealth distribution / etc.)

Technical Oversights of Threshold Encryption in Mara's Proposal

While she didn't ignore this idea, Mara did not account for potential difficulties that may arise simply due to the nature of how the 'secret sharing' mechanism works for threshold cryptography.

Secret Sharing / Federation of the Secret

Mara is correct in her assertion that:

Secret sharing is a mechanism by which a secret (or private key) is split and distributed across different participants in a way that each participant holds a share of that secret.

However, in order to assess the effectiveness of such a scheme for Ethereum, its important to analyze:

A) How the secret would be shared. Is it to be cryptographically sharded in accordance to the size of the respective ecosystem contributor?

B) Is it to be divided strictly by the number of particpants and that's it? Thus, undercutting any advantages that would have otherwise been conferred to larger 'whales' - like, exchanges, for instance?

Threshold Cryptograhy Attempts to Distribute the Secret Equitably

The gif below provides a visual to assist in better understanding how the 'secret' is distributed to begin with:

How This Can Go Awry in a Inequitable Structure Like What Ethereum's Proof of Stake Ecosystem Will Have

If exchanges are to be granted the privilege of staking on account of other entities (i.e., customers on their platform) - then the protocol's architecture will possess an easily exploited vulnerability.

Explaining Further

There are two different facets of the cryptographic scheme being proposed here that we need to unpack.

Cryptographic Scheme #1: 'Proof of Stake'

As described above, Proof of Stake, if implemented in a classic fashion, will result in the wealthiest players in the space (more than likely, exchanges) possessing de-facto control.

And while such an ecosystem may be untenable for certain users, this structure does not - in itself - necessarily create a weakness (although it does annhilate the concept of 'trustlessness').

The Game Changes When We Journey to 'Secret Sharing'

In this context (versus the classic 'staked' / 'weighted' model), there is a lot more at risk - thus, proportionally increasing the incentives for 'bad actors' / corrupted parties to emerge.

'Why'?

As mentioned prior, 'Secret Sharing' (i.e., Threshold Cryptography), is facilitated by the equitable distribution of the 'secret' by the number of participants available.

Additionally, the 'size' of the secret grows proportionally as well (which means that we're dealing with a dramatically increased attack space as well).

If Exchanges Can Stake on Their Users' Behalf - They Will Be Able to Aggregate a MUCH Larger Proportion of Shared Secret 'Pieces'

How?

Simple - under a 'representation' model where a larger entity like an exchange is given permission to 'stake on one's behalf', said exchange is under no obligation to do so.

Furthermore, said exchange has significant incentive to not do so, as they could compromise the entire scheme if they hold enough market share in the crypto space.

Subtle Difference That Allows for Monopolization of the Protocol via Factors Outside of Ethereum

Under this structure, exchanges that may not personally have a substantial stake in the Ethereum protocol, will have the opportunity to obtain a disproportionately vast amount of available 'real estate' on the protocol if their user base has at least made this investment in Ethereum (i.e., let's assume Binance owns zero Ethereum, yet their user base owns 10%+ of all outstanding Ethereum ; Binance can now claim >10% market share in this Proof of Stake / secret sharing scheme without even having to make a modest investment in the actual Ethereum ecosystem itself).

And if this is the case (which it is ), then the integrity of the protocol is nonexistant - unless that integrity is deemed to be sufficiently exhibited using the barometer of what Coinbase / Binance / other major market entities feel is the 'right' decision.

Conclusion

There is a lot more to unpack here and these concepts - while not really that complex - are difficult to dissect, semnatically, in a meaningful manner without climbing down too far into the rabbit hole technical jargon.

The next follow-up piece will break down the major flaw in the Ethereum 2.0 'Proof of Stake' model even further and will also feature supplementary pictures / GIFs / videos / references, etc., to ensure that the general audience does not get lost in the quagmire of (perhaps) willful efforts to make this topic seem so complex (on its face), that individuals / investors in the blockchain space become unanimously deterred from attempting to parse thorugh bullshit (like this), that's being disseminated (wow that was a long sentence!).

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