Envision the following scenario: You are seated at the poker table, and each hand you are dealt is awful. However, since the dealer controls the order of the cards before they are played and has complete view of the deck, the cards never grow better. Dealer always comes out on top.
Prominent person in the blockchain and cryptocurrency space, Da Hongfei, wrote the opinion editorial that follows. He is a co-founder of Neo, a decentralized application development platform powered by blockchain technology. As the CEO of OnChain, he founded the company and cemented his position there.
This may seem like a completely speculative situation. However, the blockchain industry witnesses this identical series of events on a daily basis under the garb of a miners’ and validators’ technique known as Maximal Extractable Value (MEV). The practice of adding, moving, or removing transactions from blocks that are being mined for profit is the essence of MEV, albeit it can take many other forms. MEV’s fundamental feature is essentially the ability to preview and rearrange transactions.
Not all MEVs are bad, in fact, some can even help maintain price parity throughout cryptocurrency exchanges; however, there is a serious risk to the blockchain sector from so-called “toxic MEV,” which purposefully takes advantage of people. In addition, miners and validators who abuse their position of authority and take advantage of their oversight to enrich themselves at the expense of the larger community find toxic MEV to be quite profitable. Even though it’s hard to estimate the precise amount lost to toxic MEV, recent data indicates that Ethereum alone may have lost more than $1 billion, underscoring the enormous scope of the issue.
Leaping Over the Line
In a sense, the philosophical conflict between centralization and decentralization at the core of the blockchain space is embodied by MEV. While it is widely known that on-chain transactions may be found and viewed by the public once they are finished and inserted into the block, it is less commonly known that miners and validators can see these same transactions prior to their completion and block insertion.
This is where there’s room for manipulation: Miners and validators have the power and control to reorder these transactions to benefit them in order to make more money than just the usual rewards and gas fees for their labor. Furthermore, the fact that there are far more users transacting on the blockchain than there are miners and validators keeping it secure raises the possibility of centralization issues.
The very means of preventing MEV persistence is based in decentralized technology, just as MEV is an issue that arises from the blockchain ecosystem. We can steer the market ahead by fusing encrypted transactions, also referred to as “enveloped,” with a special consensus technique called delegated Byzantine Fault Tolerance (dBFT).
Transactions Enclosed
Critical metadata is mostly hidden via enveloped transactions, which stay encrypted until they are included in a proposed block. Additionally, the lack of visibility or access to the data required to reorder transactions in a block in a block’s favor by miners ensures censorship at the protocol level. By hiding important information, encryption effectively prevents transaction reordering by preventing malicious actors from reading transactions until the block is produced or the transaction is actually completed.
Threshold decryption, which is enabled by Distributed Key Generation (DKG) for secret key setup, is essential to “sealing” and “opening” enveloped transactions. Using the corresponding keys, participating consensus nodes can then decode the transactions after they have been arranged and included in a block.
This very easy to use and very safe technique is comparable to the switch from HTTP to HTTPS, which makes sure that data is exchanged securely over the internet. Transparent information sharing over HTTP made both the information and the recipient of this information vulnerable because details may be intercepted and possibly changed. By means of encryption and verification, HTTPS ensures the security of user data and provides the necessary network infrastructure to facilitate equitable and systematic transactions.
The dBFT
The novel blockchain consensus mechanism known as dBFT is the second weapon in the fight against poisonous MEV. Pioneered and developed by Neo, dBFT eliminates harmful MEV at the protocol level, at the start of the process. In short, token owners can vote to support a certain “bookkeeper” or “delegate” using dBFT. Anyone who satisfies a minimal set of standards can apply for the position, and these bookkeepers use the Byzantine Fault Tolerance technique to come to an agreement and produce more blocks.
Consensus under dBFT is only achieved when two thirds of the delegates concur to add a transaction to a block and validate it. Similarly, delegates have the ability to determine whether or not a block proposal is corrupt, and they can choose to invalidate the block in order to prevent any malicious activity. After that, a fresh group of delegates take up the duty of validating the subsequent block transaction. Global blockchain networks that have to fight bad actors and stay operational at the same time can find the perfect solution in this requirement that block transactions be confirmed by a majority of the delegates, which also keeps the network able to reach consensus even in cases where one or more delegates are dishonest.
From Here, whither to go?
We are reaching a turning moment in the blockchain revolution, when people are beginning to notice what Web3 firms have been advocating for years. We can see our future, which we envision as transparent and decentralized, but we still have obstacles to overcome before we can cross the finish line. DeFi cannot become a truly equal playing field, with regular retail users on par with the main industry participants, implying a more equitable and decentralized business, until poisonous MEV are eliminated.
The blockchain sector must provide security, fairness, and transparency at the same time. This can only be accomplished by employing the best user protection solutions. The best option is offered by dBFT, which offers a safe and decentralized system that allows participants to use their voting power to guarantee the greatest possible profit for the community as a whole. Alongside enclosed transactions, dBFT consensus will promote peer engagement and safe community participation, guaranteeing that broad community involvement will propel this industry forward.
How do you feel about the MEV solution proposed by Da Hongfei? Please feel free to express your ideas and opinions in the space provided for comments below.