Under the current system, networks of computers known as miners extract transactions from a special data pool, and organize them into blocks to be added to the block. Miners are being eliminated as part of a plan to reduce energy consumption. Following the planned September upgrade, known as a merge, builders will collect transactions into blocks, which they will then send to validators. Verifiers will sign a sequence of blocks that will make up the upgraded blockchain.
This seemingly geeky change, part of a raft of software upgrades called MEV-Boost, could potentially make Ethereum More centralized, at least initially. While there are already more than 416,000 validators lined up to order transactions, only a handful of participants have committed to serving as builders. The biggest is Flashbots, which makes open-source software used by trading bots.
Flashbots are already the dominant way for miners to forward their transactions and otherwise charge merchants a fee for others to step around. Other participants are considering becoming builders because of concerns about flashbots or similar entities having too much control.
“It kills decentralization,” said Uri Klarman, chief executive officer of BloXroute Labs, which has a network of servers that let merchants send transactions to miners faster. About 40% of all trading volume comes from decentralized finance apps, which Lets people do business, loans and borrowed coins are sent through the network, he said.
One risk is that a powerful digital wallet like MetaMask, which gives users the ability to buy, sell and receive cryptocurrency, could become a “king maker,” Klarman said. Metamask is the most popular non-custodial wallet with 30 million users.
One wallet service may favor one builder over all others and may even decide to act as one builder, thus controlling the flow of transactions, Klarman said.
MetaMask is owned by New York-based ConsenSys, which was founded by Ethereum co-founder Joseph Lubin. The software firm dismisses the concern.
Taylor Monahan, Global Head of Product, Metamask, said, “We will never forward all transactions of MetaMask to a specific manufacturer or provider. The value of MetaMask is derived from the gateway to an exciting, vibrant, diverse and fair ecosystem. For that reason From now on, MetaMask will always strive to make decisions that promote a healthy and decentralized Ethereum.”
The builder-verifier role split was initially conceived as a way to increase the decentralization of Ethereum and to take the power away from the validators.
Nevertheless, having too few builders on the advanced Ethereum chain poses potential problems. They could have prevented the transaction from being included in the block. Earlier this month, Flashbots blacklisted wallets associated with Tornado Cash after the US Treasury Department approved the Mixer protocol.
If there are too few builders, they can also incur high fees, with validators earning less. This, in turn, could lead to fewer validators joining backing the network. According to Flashbots, to date, miners have made about $240 million on a transaction-restructuring service called MEV. Fees are also expected to be a significant contributor to validators’ revenue.
Builders can also take advantage of the order flow of their users. If a builder knows that a lot of users are placing orders for a particular token, they can buy a long position in it, for example.
It’s like “Robinhood, making money from order flow,” said Nathan Worsley, referring to the commission-free trading firm. Worsley and his associates, who make money from transactions involving liquidations and reorganizing various complex trades, are considering becoming a builder, he said.
Worsley is not alone in contemplating a shift in focus due to potential centralization risks and a change of power.
“We will monitor the situation. If it comes closer to a centralized builder world, we will take action,” said Jonas Pfanschmidt at Blockdaemon, which runs validator nodes for customers.
This story has been published without modification in text from a wire agency feed.
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