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Vitalik Buterin Unveils New “Rainbow Staking” Framework For Ethereum – Here’s How It Works

On Wednesday, Vitalik Buterin, one of the co-founders of Ethereum, introduced a novel “rainbow staking” framework. This innovation has the potential to distribute protocol control away from the dominant entities within the network, thereby enhancing decentralization.

Vitalik Tackles ETH Staking Centralization at ETHTaipei 2024

During the ETHTaipei 2024 event on Wednesday, the esteemed developer shed light on the concerning concentration of Ethereum’s staked supply within centralized entities. Notably, government-regulated exchanges such as Coinbase and Binance hold a significant portion of this staked supply.

While these staking providers haven’t engaged in any malicious activities thus far, Vitalik Buterin emphasized the long-term risk associated with the potential collusion of such entities. “We have become overly reliant on ‘social pressure + virtue,'” remarked the co-founder, as reported by Chinese outlet ABMedia Crypto.

He posed critical questions regarding the inevitability of this dependency and stressed the importance of clarifying whether the network relies on incentives or solely on social pressure and virtue. This introspection is crucial to avoid excessive dependence on the latter.

Although solo staking directly on ETH is feasible, it necessitates a minimum stake of 32 ETH for participation. This threshold was initially set to prevent the blockchain from being inundated with numerous small-scale stakers, thereby aiming to mitigate excessive ETH requirements.

Nevertheless, with the current minimum value translating to $112,000, it has erected substantial economic and technical barriers to entry. Consequently, a significant number of ETH holders opt for delegating the staking task to large third-party entities, resulting in what some term as “lazy ETH holders.”

These third-party providers also offer “liquid staking” services, which remunerate stakers with tokens pegged to ETH, enabling them to redeem their locked ETH.

Presently, blockchain data indicates that nearly 42 million ETH, valued at approximately $145 billion, is being staked on the Ethereum network.

What Is Rainbow Staking?

To address this challenge, the “rainbow staking” framework proposes a solution by enabling both individual and professional staking providers to access various tiers of staking based on their specific requirements.

Outlined in Ethereum’s official blog, one example of this framework involves distinguishing between heavy (slashable) and light (partially/non-slashable) clients, thereby disaggregating the roles performed by each service provider.

By implementing such differentiation, the framework facilitates tailored services for different categories of service providers, rather than imposing uniform expectations on all. As stated in the blog post, “This allows for differentiated classes of service providers to be maximally effective in each service category, instead of lumping all under a single umbrella of expectations, asking everything of everyone.”

Furthermore, rainbow staking would separate the roles of “capital allocators” and “service operators,” delineating between those who contribute economic stakes to secure the network and those responsible for actual block validation.

In a related development, last month, Binance Labs supported Babylon, a team working to enable Bitcoin owners to earn staking rewards on their BTC across various networks, potentially including Ethereum.

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I want to save money. Will cryptocurrency work?

Cryptocurrency is essentially virtual money that operates in a decentralized manner, not through a bank but directly on multiple independent computers.

Every cryptocurrency has two main components: the units of digital exchange called “coins” and the network within which the exchange takes place. These units can be transferred between wallets and exchanged on exchanges. The networks in which these coins exist are called blockchains, which translates to “chains of blocks.”

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