Ethereum was founded on a vague, albeit tightly held set of principles around financial freedom and credible neutrality. Recently, those principles have been tested.
As regulators and big-money players bid for a larger role in Ethereum’s “decentralized” ecosystem, the blockchain’s co-founder, Vitalik Buterin, shared an updated vision for the network on Saturday – augmenting a road map he shared last month to include a new development track focused on ameliorating the censorship of transactions and an exploitative bot-driven trading practice known as maximal extractable value (MEV).
Censorship and MEV have become more existential for Ethereum in recent months, with governments and sophisticated users challenging key safeguards meant to ensure the network’s neutrality – the idea that anyone using or building on the network is treated without bias.
When the U.S. Treasury’s Office of Foreign Asset Control (OFAC) sanctioned addresses associated with the Ethereum-based Tornado Cash – effectively calling on the network’s operators to stop processing (i.e., start censoring) transactions linked with the program – it directly challenged the idea that blockchains like Ethereum, which are supposedly operated in a decentralized manner, cannot be tamed by central authorities.
As for the scourge of MEV, the practice covers a mishmash of behavior but boils down to strategically ignoring, re-ordering or poaching transactions added to a blockchain – screwing over the person who originally placed a trade.
By formalizing an approach to these problems in a standalone section of Ethereum’s road map, Buterin is seemingly reminding the crypto community that MEV problems and censorship risks should be addressable – at least in part – by routine updates to the blockchain’s code.
A new road map
Buterin’s road map is divided into six development “tracks” that are all progressing in parallel, each track containing a hodgepodge of proposed upgrades for the blockchain’s core code.
Ethereum’s first track, “The Merge,” reached a key milestone in September when the network shifted to a proof-of-stake system, abandoning the significantly more energy-intensive proof-of-work system trailblazed by Bitcoin.
Slotted between the speed-focused second track, “The Surge,” and the efficiency-focused fourth track, “The Verge” (which also saw significant revisions with the new road map) is a new track: “The Scourge.”
The goal of the Scourge, according to Buterin’s new road map, is to “ensure reliable and credibly neutral transaction inclusion and avoid centralization and other protocol risks from MEV.”
Censorship and MEV
Since the U.S. Treasury Department sanctions against Tornado Cash were announced over the summer, more than 51% of the validators that write and approve transactions on the network have begun ignoring those associated with the program, which is used to obscure where crypto is being sent to and from.
For many crypto developers and enthusiasts, that’s censorship, and so anathema to their goals.
Tornado transactions can still make it onto Ethereum, but they do so at a delayed rate relative to typical transactions. If enough validators refuse to process Tornado Cash transactions for fear of upsetting regulators, those transactions could, in theory, be censored from the chain entirely.
Also at risk of jeopardizing Ethereum’s neutrality is MEV – extra profit that validators operating the network can earn by re-ordering the transactions that they add to the network. The opportunity to extract MEV exists as a quirk of how blockchains like Ethereum operate, whereby the validators that run the network can effectively preview pending transactions from other users before they are finalized.
Though MEV may add some baked-in incentives to Ethereum that help the network operate more efficiently, it can also harm users. For an example of how, look up “sandwich attacks,” whereby a validator profits off of advanced knowledge of a trade, ripping off other traders in doing so.
Though censorship and MEV pose major challenges to Ethereum, Buterin and other core contributors to the network say that their harms can be programmed away.
Included in the Scourge, one method for addressing censorship and MEV concerns is protocol-level proposer-builder separation (PBS).
Today, Ethereum’s validators are responsible for compiling transactions into blocks (building), as well as pitching those blocks out to other validators so they can be accepted onto Ethereum’s ledger (proposing).
PBS separates building and proposing into two distinct roles. As a result, validators should have less of an ability to directly censor or reorder transactions – both limiting the amount of exploitative MEV they can extract, and potentially reducing the ability (or necessity) for validators to censor transactions to comply with regulators.
Though PBS is not baked into Ethereum’s code, it is already the network’s status quo. Most validators today use “MEV-Boost,” software that pre-builds MEV-optimized blocks for validators so they can easily earn more for their work.
Flashbots, the research and development firm behind the software, apparently aims to make MEV extraction more equitable. It has been scrutinized, however, for contributing to Ethereum’s problem with centralization and censorship: anyone is allowed to build and deliver blocks through MEV-boost, but most validators opt to receive blocks pre-built by Flashbots itself, which censors out Tornado Cash transactions.
Buterin, to prevent block builders from censoring in the future, includes a proposal for “inclusion lists” in the Scourge track on his road map. Once PBS is built into Ethereum, this proposal would give proposers the ability to effectively demand that builders include certain types of transactions in their blocks.
The wider context
Ethereum’s open-source developer community is famously slow to implement big updates, and the release of a new road map should be viewed as much as a PR play from Buterin as a practical set of next steps.
Although Buterin’s updated road map includes myriad new additions outside of the new “Scourge” track, the introduction of an entirely new section focused on MEV and censorship shows how top-of-mind centralization has become for Ethereum in recent months. It shows that Buterin (and co.) are thinking deeply about some of the ecosystem’s most pressing headwinds – even as questions remain around whether regulations and community consensus may make them difficult to code away.
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