‘Intellectual Posturing’ Highlights Ethereum’s Extractable Value Vulnerability
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.
The project, initiated by Edgar Aronov, CEO of hackathon platform Eventornado, would allow miners to programmatically reorganize chains to capture MEV, as reorganization, also known as reorg, allows miners to remove previously confirmed blocks from a blockchain. For example, in theory, recent transactions on a blockchain could be rolled back to recover lost funds in a hack.
Meanwhile, MEV is a measure of the profit a miner can make through their ability to arbitrarily include, exclude, or re-order transactions within the blocks they produce, per Paradigm Research. According to them, if two miners, Mi and Ner, are getting paid USD 100 each and Mi finds a block with a USD 10,000 arbitrage, he may decide to remine the first block, take the arbitrage for himself, after which Mi remines other blocks he found as well, capturing all the MEV there too.
Also, it is known as a “time-bandit” attack: if block rewards are small enough compared to MEV, it can be rational for miners to destabilize consensus, per the researchers.
According to them, MEV is an invisible tax that miners can collect from Ethereum users and it inherently encourages consensus instability. 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.” He also noted that this is not implemented yet, but it’s a chance to design the application programming interface (API).
He said that this is his “own personal project,” that he “just started” it and “it doesn’t exist” at the moment.
William Foxley, Editorial Director at Compass Mining, described the proposal as “an area miners and others have not been willing to go because it would hurt Ethereum’s consensus and therefore its asset,” but also that miners have nothing to lose, given the PoS coming to the network with the rollout of Ethereum 2.0 (ETH 2.0).
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 argued that this code would be even more detrimental than front running — an event where bots bid a higher gas price on a transaction, incentivizing miners to put it earlier in the line when constructing the block, as the higher-paying transactions are executed first, and only the first transaction from the same contract call will take the profit.
“All of this is great in theory but there are tons of huge holes,” said Michael Carter of miner YouTube channel Bits Be Trippin, providing three examples:
- it would mean the largest mining pools would indeed implement this activity and have only a 40% or less chance to win this (for example, ethermine.org has 33%-40% of the network at any one time) — it’s vampiric in nature to the ecosystem and the pool would probably lose half of its hashrate immediately if they attempted;
- it takes core assumption that miners are only short time profiteers and do not care about the ecosystem, which Carter argues is “outright incorrect considering most large miners, especially the publicly traded ones hold as much native mined currency to reinvest/use/deploy within the ecosystem” — so this activity would be counter-productive;
- the entire argument/theory is “intellectual posturing between a handful of engineers building out the architecture/design to prove a point, which will have a quick lack of interest once people point out” the prior two points.
Will PoS Help?
Also, according to Paradigm Research, proof-of-stake blockchains can punish validators who attempt to reorg, therefore making time-bandits “significantly more costly,” especially when combined with strong finality (after a small period of time, a block is declared final and can never be changed). However, “with enough MEV the incentive to reorg could still be greater than the slashing penalty,” they said.
As Alyse Killeen, the founding Managing Partner of StillMark, a venture capital firm, and member of Board of Directors at Blockstream, noted, “once you’re counting on miner benevolence 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.”
In either case, according to Carter, front running has been going on since early 2017, it will continue and could arguably be worse in PoS given that the validators are announced per epoch (an era of time within a blockchain network), allowing “for more interesting ‘pay for position/off-chain transaction deals’ because the processors/validators will be known ahead of time.”
All this said, quite a few commenters under Aronov’s posts, and elsewhere, concluded that if implemented, this “reorg on demand” and accelerating MEV extraction would be damaging to Ethereum.