If you are reading this article, you may be familiar with the concept of blockchains and how transactions are recorded, verified, and authorized on them. If not, there are several key steps a blockchain transaction must complete before it is immutably recorded/added to a block on the chain.
Below, we discuss the process of adding a transaction on the blockchains, the problems arising from blockchain transactions, and the potential solutions to these problems.
Once a transaction is posted on the blockchain, it has to be authenticated. This is done using cryptographic keys, a string of data (like a password) that identifies a user and gives access to their “account” or “wallet” of value on the system. Once authenticated and parties agree on the transaction, it is approved to be added to the chain, with the decision being made through a consensus, or agreement across a majority of the mining nodes available.
Here, popular blockchains use the proof-of-work (PoW) or proof-of-stake (PoS) consensus mechanism. The transaction is then recorded on a block and the block is then added to the blockchain.
Understanding the MEV issues on blockchain transactions
As seen above, blockchains maintain the decentralization aspect in all steps of verifying a blockchain transaction. Nonetheless, PoW blockchains such as Bitcoin and Ethereum still face an issue during mining (consensus), the miner extractable value or maximal extractable value (MEV). Simply, MEV refers to a miner’s ability to dictate when, how, and where a transaction is placed on a block during approval.
MEV allows miners to play around with the transactions to gain additional revenue per block. This includes sequencing transactions in different ways, such as approving transactions with a high gas fee first, despite entering the block late.
This has serious implications for trade settlements, more so on decentralized exchanges (DEXs) and permissionless lending & borrowing, which must settle trades in a specified manner.
To further illustrate, imagine Andrew has submitted their transaction to a chain. However, Bernice sees the trade as Andrew’s is awaiting miners’ approval and quickly copies it with a higher fee.
In this instance, miners will be pushed to favor approval of Bernice’s transaction, which pushes Andrew’s transaction further back in line. This has previously been termed as blockchain’s version of Wall Street’s front running.
In an effort to reduce the cases of blockchain front running, Automata, a privacy blockchain-based middleware for decentralized applications (DApps), is establishing a secondary relay to minimize front running and MEV tactics, ensuring every transaction on the chain is completed fairly and transparently.
More problems in the NFT space
While PoW chains suffer most from the entanglements of MEV, the problem has also crept into the non-fungible tokens (NFT) market. As the NFT market booms, most NFT drops are usually successful to investors with large sums of money, locking out the small-time investors.
Apart from providing solutions to the MEV conundrum, Automata also allows projects to complete a fair NFT drop, giving all participants a fair and transparent platform to buy Genesis NFT drops.
The platform partnered with Conveyor, a middleware solution that minimizes Maximal Extractable Value for users and incorporates privacy modules as requested. This allows projects to complete ‘NFT fairdrops’, those that give every participant a fair chance to scoop up an NFT during a drop.
Metaverse projects are already swarming to Automata aiming to provide fairness whether on mining or NFT drops. One of the leading metaverse projects on Automata, Readl has collaborated with Conveyor to allow “everyone to mint NFTs at a fair price floor, without favoring any technically-advanced, privileged parties” — whether they are block producers, bot operators, or MEV extractors.
Conveyor timestamps offer proof-of-first (a first-come, first-served consensus model), which enables participants to enjoy a fair NFT journey, and creates an engaged community in the long run.
Additionally, Monster Galaxy, a popular play-2-earn (P2E) game franchise, has also incorporated Conveyor’s solutions to support their upcoming Genesis MOGA Blindbox NFT drop. The Conveyor platform will provide a front running free zone with ordered privacy, make it impossible for malicious actors to inject new transactions in the block, minimize miner bribes, and implement true randomness for a fair NFT auction.
Final words
MEV across PoW chains has been a rising problem across blockchains. This has led to many transactions being rejected or pushed back, messing up their trades on DEXs. With the problem also creeping in NFT auctions, solutions such as Automata are needed to ensure the transaction order remains fair and transparent.
Projects and DApps adopting these solutions have an opportunity to welcome everybody to their NFT sales/transactions without locking out some investors.
