A “personal project” by a developer might bring even more controversy into the so-called Miner Extractable Value (MEV) practice on the Ethereum (ETH) blockchain, possibly tempting some miners to extract all the value they can from Ethereum before it moves to a proof-of-stake consensus mechanism (PoS), as this move is forcing them to look for new revenue streams.
Edgar Aronov, CEO at hackathon platform Eventornado initiated the project. This would allow miners programmatically to reorganize chains to capture MEV. Reorganization (also known as reorg) allows miners remove blocks that have been confirmed from a blockchain. For example, in theory, recent transactions on a blockchain could be rolled back to recover lost funds in a hack.
Paradigm Research says that MEV, which is the measure of a miner’s profit, refers to their ability arbitrarily to include, exclude or re-order transactions in the blocks they produce. They say that if Mi and Ner are being paid USD 100 each, and Mi discovers a block with USD 10,000 arbitrage, he might decide to remine it, then take the arbitrage. After that, Mi will remine other blocks, and capture all MEV.
It is also known as a time-bandit attack. If block rewards are low enough relative to MEV, miners can destabilize consensus. According to researchers.
They believe MEV is an invisible tax that miners collect from Ethereum users. It inherently encourages instability and consensus. And while hypothetically MEV can also be seen on the Bitcoin (BTC) network, “our hypothesis is that Bitcoin is inherently less exposed to MEV than blockchains like Ethereum,” per the researchers.
And now, according to Aronov, his code would allow such “reorg on demand.” This isn’t yet implemented, but it gives us an opportunity to design the application programming interface.
He told Cryptonews.com that this is his “own personal project,” that he “just started” it and “it doesn’t exist” at the moment.
Compass Mining’s Editorial Director William Foxley described the proposal as “an area that miners and other have not been willing go because it would harm Ethereum’s consensus, and therefore its asset.” However, miners also have nothing to lose given the PoS available to the network in the wake of Ethereum 2.0 (ETH2.0).
In PoS, it’s the validators who’re doing what miners do in proof-of-work (PoW). Validators are chosen at random to create blocks and are responsible for checking and confirming blocks they don’t create.
Foxley also claimed that this code would be more harmful than front running. This is where bots offer a higher price for a transaction to incentivize miners to place it earlier in the block construction line. The higher-paying transactions will be executed first and the profits will only go to the first transaction in the same contract call.
“All this is great in theory, but there are tons and tons of holes,” Michael Carter from Bits Be Trippin, a miner YouTube channel, told Cryptonews.com. He provided three examples.
It would be a sign that the largest mining pools will indeed carry out this activity, with a 40% chance of winning it (ethermine.org currently has 33%-40% network traffic at any given time). If they tried, the pool would likely lose half its hashrate instantly.
It assumes that miners are short-term profiteers and don’t care about the ecosystem. Carter says this is incorrect because large miners, especially those publicly traded, hold as much native currency to reinvest/use/deploy within it. This activity would be counterproductive.
The entire argument/theory is intellectual posturing by a few engineers who are trying to prove a point. Once people point out the previous two points, there will be a lack of interest.
What will the impact of PoS be?
Although it appears that reorg will continue to be a factor in Ethereum’s next version, it is still unclear how PoS will affect it and how it will impact Ethereum at that time.
Flashbots, a research group, stated that MEV would remain in ETH 2.0. The difference is that validators will be able to order the transactions and miners will not. According to them, MEV will boost validator rewards but could increase inequalities among participants in ETH 2.0.
However, according to developer Ryan Berckmans, the current Ethereum mainnet will eventually merge with the PoS system, and this merge will include three structural protections against time bandits, these being:
Validators having structurally long Ethereum ETH, vs. miners having structurally long Ethereum
Validators stay forever vs. miner without long-term skin
Short reorgs are becoming more feasible, while long reorgs are impossible.
Paradigm Research also claims that proof-of-stake Blockchains can penalize validators who try to reorg. This makes time-bandits “significantly less costly,” especially when coupled with strong finality (after a short period, a block becomes final and cannot be changed). They said that “with enough MEV, the incentive to reorg might still be greater than a slashing penal.”
Alyse Killeen was the founder of StillMark Venture Capital Firm and a member of the Board of Directors at Blockstream. She stated that “once you count on miner generosity you’re in trouble.”
Nunchuk Founder Hugo Nguyen also argued that PoW consensus is clear and transparent, but that “PoS is obfuscated PoW,” adding that “because PoS is obfuscated work, PoS “miners” can find loopholes to steal your money.”