Ethereum Celebrates Beacon Chain’s Fourth Birthday Ahead of Overhaul

The launch of Ethereum’s Proof of Stake consensus layer, the Beacon Chain, took place four years ago on Dec. 1. However, the transition to Proof of Stake has not played out as expected.

On Dec. 1, Justin Drake, an Ethereum Foundation researcher, took to X to celebrate the milestone. Drake noted that the Beacon Chain now provides Ethereum with $125 billion worth of economic security and has achieved 100% uptime since launch.

“No other PoW or PoS chain comes close — the gap is immense,” Drake said. “Looking ahead, there is a tremendous opportunity to cement Ethereum as the settlement layer for the internet of value.”

According to Beaconcha.in, more than 1.07 million validators have staked nearly 34.4 million ETH, equating to 28.5% of Ether’s circulating supply.

However, Drake, who recently proposed the Beam Chain roadmap to overhaul the Beacon Chain, concedes that Ethereum’s consensus layer is “far from perfect.” He identified staking deposit limits and technical overhead, censorship resistance, finality, and maximum extractable value (MEV) as key areas of concern.

Liquid staking and centralization

Several of the issues identified are interrelated, with the emergence of liquid staking giving rise to higher-than-anticipated levels of staking participation.

Liquid staking allows users to stake their assets through third-party staking providers and receive tokens representing their staked assets, eliminating the technical and hardware barriers associated with operating a node.

These liquid staking tokens (LSTs) allow users to remain liquid, bypassing the delays associated with withdrawing ETH from the Beacon Chain. LSTs can also be used in the context of DeFi to earn additional yield or as collateral for borrowing.

Many liquid staking providers also allow users to participate with less than the 32 ETH that node operators must provide as a bond, circumventing another barrier to staking participation.

Despite making it easier for users to participate in staking, the emergence of liquid staking has created centralized challenges for Ethereum both by disincentivizing solo staking and giving rise to large entities controlling a significant share of staked Ether. More than 28% of ETH is currently staked through the largest liquid staking protocol, Lido Protocol, according to Dune.

To promote solo staking, the Beam Chain upgrade aims to reduce the staking bond to 1 ETH. Ethereum’s technical roadmap also includes minimizing the technical overhead required to run a node to allow lightweight devices including browser wallets and smart watches to validate the network.

Ether issuance

The Beam Chain roadmap would also include redesigning Ethereum’s tokenomics to reduce Ether inflation, with several Ethereum researchers noting that Ether’s issuance mechanism was designed prior to the existence of liquid staking based on the assumption that fewer users would participate in staking.

In a recent blog post Vitalik Buterin, Ethereum’s chief scientist, proposed reducing the rate of Ether issuance as more stakers onboard the network to disincentivize the majority of ETH holders from participating in staking.

Reducing Ether issuance may also restore ETH as a deflationary asset. The supply of ETH has consistently inflated since April after the Dencun upgrade dramatically reduced both the fees associated with transacting on Layer 2 and the costs paid by Layer 2 networks for finalization, significantly reducing Ethereum’s burn-rate.

MEV centralization

Ethereum’s current MEV ecosystem is also giving rise to centralization risks, with economic incentives resulting in just two block proposers selecting the contents of approximately 88% of Ethereum blocks.

Buterin proposed several measures to tackle MEV centralization, including distributing block production among a larger number of entities, introducing encrypted mempools, and leveraging an auction mechanism to select the contents of blocks.