The Bank of Italy has published a working paper exploring how to handle a loss of faith in a public blockchain, with Ethereum as one example. It sees it as an important question given that many traditional financial institutions are interested in engaging with permissionless chains.
The security of a Proof of Stake permissionless blockchain is based on how much it would cost a bad actor to attempt to subvert it. In turn, that cost is heavily impacted by the value of the blockchain’s cryptocurrency token. The central bank stated that the current Ethereum “security budget”, the cost to acquire 50% of staked ETH and enough to threaten network security, would be around €71 billion. These figures make it somewhat unlikely to be subverted, possibly with the exception of state actors with a goal of undermining public trust in Ethereum. But if the price of Ether were to collapse, that security budget would decline dramatically.
The price of ETH has largely been driven by the investor conviction that “number go up”, as the central bank put it. But that conviction is capable of being undermined, threatening the security of the assets that are stored on the blockchain. Potential causes might be a breakdown in governance, the emergence of a credible blockchain challenger, or macro shifts encouraging derisking away from crypto investments.
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