In its current state, Ethereum utilizes a Proof-of-Work (PoW) consensus protocol whereby a group of network participants, also known as miners, play a critical role in securing the network and validating transactions on the blockchain.
These miners are in charge of selecting and aggregating network transactions into blocks, ultimately deciding which transactions from the mempool, or the memory within a node that holds pending transactions before they’re mined, they will include in these mined blocks.
Miners and other key players, such as validators and sequencers, continuously explore ways to earn a profit for their efforts in helping support the network. In order to do this, they typically prioritize the transactions which have the highest value and gas fees, to access the highest profits.
The protocol doesn’t restrict miners with any rules in regards to following this specific process. Miners have tremendous flexibility and can utilize their power to manipulate transactions, thereby pulling additional profits from users. This constitutes an “irregular” stream of revenue for miners, commonly known as miner extractable value or MEV.
But what exactly is MEV, and how does it affect Ethereum users and miners? We will explore this topic in greater detail, present further background information, and determine what the future holds.What is MEV?
MEV has been a widely discussed topic and growing concern within the Ethereum community ever since DeFi first rose to prominence. Simply put, MEV represents the total value that miners permissionlessly extract from the Ethereum network’s users by reordering, inserting, and censoring transactions within the blocks being produced.
For those familiar with how decentralized exchanges (DEXs) operate, transaction ordering is absolutely critical, especially when large volumes of trades are simultaneously being submitted. Traders are constantly looking to get their transactions prioritized a...