Introduction

MEV cites "MINER/MAXIMAL EXTRACTABLE VALUE," referring to earnable revenue by extracting value from inserting, processing, or redacting the exchanges in blocks of Ethereum users. The issue of MEV is not new in Ethereum; in fact, it first came to the surface in 2014, surprisingly it was a year before the official launch of Ethereum. It was first detected by P McGoohan, an analyst coder who has good experience as an algorithmic trader. MEV is usually considered bad for decentralized finance users who interact with AMM and other applications. 

Though the problem of MEV was known by long-time crypto traders in the Ethereum network, the Ethereum community didn't discuss it openly until the last couple of years. Traders and miners are more considerate about gaining financial liberty via crypto trading than worrying about specific issues. They are not wrong, though; as per data from April 2021, crypto miners of one of the popular platforms, "Bitcoin," together earned a total of 56 million dollars in just a single day. Looking at such an unbelievable profit, more individuals are now joining different crypto trading platforms. 

It is exciting to know that Ethereum is the 2nd largest blockchain platform that carries crypto trading. But, the problem of MEV is now disheartening a lot of its new users; on the other hand, experienced ones are attempting to master it for maximum gains. Suppose you are not familiar with the history and impact of MEV in Ethereum. In that case, this article has plenty of information for you.

Origin of MEV

In 2008, the whole world experienced the downfall of the global economy. Years later, when Ethereum came into the frame, P McGoohan instantly deemed it the financial industry's future across the globe. He stated that the concept of a programmable Ethereum blockchain that can enable shared and authentic markets blew his mind. However, his excitement went down when he looked through the pre-Genesis draft of Ethereum. He discovered MEV, a critical drawback of Ethereum. He pointed out that miners operating in the Ethereum blockchain can control ordering procedures and transaction recordings. It implies that miners may misuse this loophole to extract value from inauspicious members in the network. 

However, at that time, the community did not take his concerns seriously until 2019, when a research team published the issue on the paper named FLASH BOYS 2.0. This was the first time when the term MEV was used to describe the problem. Further, the same issue was again published by the two famous articles in 2020. These two articles discuss how MEV is actually a fundamental phenomenon in crypto finances. They also emphasize that MEV is today's most significant and challenging problem that Ethereum users face. All this data about MEV available on the web has cemented that it is not just limited to a theoretical problem; in fact, it covers a considerable scale of Ethereum users. With increasing awareness, MEV has become a subject of concern among Ethereum users. 

Understanding MEV in-Depth

The Miner Extractable Value is a value obtained from the logical blend of Miners and Front runners. 

Front Runners try to reach arbitrage on Ethereum by scanning mempool to find exchanges. Further, after seeing the transactions, these front runners pay a more extensive amount for the exact transaction so that they can keep the arbitrage. However, in some situations, two different front runners compete for the same transaction having a high arbitrage value. In such a scenario, rival front runners bid on costlier gas fees to get the transaction. 

When more than one front runner is bidding for a transaction, miners are the ones who take the most advantage. Usually, in the end, miners get to claim the arbitrage value. And this practice is known as Miner extractable value. 

Mempool transaction empowers miners to control transaction orders, from which MEV can be obtained. In Ethereum mempool, the person who processes the authority over transaction orders directs the value of all investments. Hence, by default, those with control over the sequencing of transactions get the advantage of acquiring the value for themselves.

Besides, miners can also act as front runners. Hence, we can conclude that miners using their power to streamline transaction orders in Ethereum can serve as front runners without any hassle.  

In fact, miners who don't participate in the front running aren't able to make profits the way those who perform front running do. Looking at such advantages, it is anticipated that every Miner will become a front-runner in the future. 

Experts say that the name "MINER EXTRACTABLE VALUE" confuses people to think that MEV means miners are required to take some actions. But, in actuality, there is no need to take any type of action by miners. The whole process is basically driven by transactions of tokens on Ethereum, giving rise to more financial investment in the network. This resulted in users' gas fee bidding in the public mempool, and earned fees from such auctions get dispersed to every Ethereum miner.  

How can you detect MEV-extracting transactions?

To get more insights into the MEV concept, getting familiar with how you can detect MEV extracting transactions would be helpful. Usually, MEV is achieved by the manipulation of a transaction sequence. Users can manipulate the system by following practices:

● Users tend to bid gas fees that are similar to or beyond the targeted transaction fee. This strategy ensures that the targeted transaction will come before or after the bidding amount. One can detect this practice by observing the number of failed transactions that have a similar or a bit less gas fee than a successful transaction arranged right before it. The failed transaction implies losing investment bots.

● In some cases, users also bribe miners to get the transaction arrangement within a mined block as per their choice. One can detect this practice by observing the number of transactions within a single mined block that comprises minimal gas fee up to zero or one.

However, most of the time, transaction procedures are not expressed clearly. But in the case of a few unique transactions, all aspects of the working of transactions, its transparency, and other articles are accessible to be reviewed by totaling the inside out of related addresses in a batch of transactions.

What is the reason behind the occurrence of MEV?

Working within the framework of the Ethereum blockchain, the miners are the ones who are liable for picking and adding the transactions into blocks. This authorizes them with the power to select or reject transactions from mempool. A mempool is defined as an off-chain region that lines up the transactions that are yet to get approval from the members to get linked to the Ethereum blocks.

To gain profits, the authoritative users like validators, miners in the Ethereum framework choose and process transaction orders for the highest gas fee possible. But, the practice of arranging transaction orders based on their price is not necessary. However, miners can use their power to rearrange transaction orders and gain extra revenue from other users. Hence, MEV is primarily an indefinite income stream for miners. Usually, the term MEV is linked to Ethereum miner. However, it should be noted that it is not just an Ethereum-originated problem or a POW.

Multiple researchers have reported that in current times mostly bot operators, investors, and traders are the ones who opt for MEV extraction. In fact, these entities are actively searching for MEV opportunities and partake in multiple ways to grab profits. On the other hand, miners never openly participate in MEV proceedings; they indirectly earn from gas fees provided by bot operators, traders, etc.

Blockchain users other than Ethereum will also experience MEV in their network. This happens because MEV is directly connected to each smart contract-empowered blockchain. Hence, if a blockchain has a group of entities that control transaction orders, such as defi traders and validators, the chances of Miner Extraction value occurrence are high. 

The best way to understand the theory of MEV is by putting oneself in the shoes of leading actors in a blockchain network like searchers, members, dApps, prototype designers, and most importantly, the miners. 

What are the concerns related to MEV in Ethereum blockchain?

There are several significant concerns when it comes to MEV in Ethereum. Some of them are pointed down below:

●     The need to get expensive knowledge

One of the significant ones relates to the role of miners. In comparison to other blockchains, miners operating in Ethereum find it challenging to stream their tasks. Moreover, they have to be up to date with the most recent smart contracts launched on Ethereum. In addition to this, they must master the technique to arbitrage these transactions. And keeping up with such extensive knowledge is remarkably costly.

On the other hand, the process for Bitcoin miners making most of MEV is comparably simple. They just have to rank the transactions based on their gas fee and choose the top-ranking transaction having the most value. 

However, we should consider that blockchain mining is a competitive space, and being thoroughly knowledgeable will keep you at the top. Also, in such a competitive scenario, miners tend to tackle the pressure by joining into more significant centralized pools and divide the MEV expense among the pool members.

●     High variation within blocks

Another concern is that in Ethereum, some blocks are entirely untouched. In contrast, others offer continuous chances to grab high-value arbitrage. Know that the more the variation in incentive in blocks, the more varied rewards miners get. This situation increases the rush among miners to join bigger mining pools so that they can maintain such variations. Smaller miners suffer from this circumstance as, for them, the network becomes a centralized space.

●     Destabilization of Ethereum Network

The biggest concern regarding MEV in Ethereum is that MEV has the potential to destabilize the entire theory that runs the Ethereum network. A cryptocurrency is safer and profitable only when a recent block mine it rather than altering that cryptocurrency's history that is already written on a previous block. In MEV, miners compete for a specific high-value block that is mined recently to gain more profit. They try to rewrite the old block rather than go after the new block, which might crash the network. 

Is there any solution for MEV?

The data mentioned above shows the severe data integrity problem in the Ethereum network. Developers must resolve the issue as soon as possible. There is no approved solution yet, but experts say it is possible to formulate effective solutions to deal with MEV. However, the success of a solution will only depend on the Ethereum community.

The possible approaches developers can take are: 

● Designers of decentralized applications may use a stronger MEV resistant structure while creating a smart contract. Meaning, a potential target transaction can be covered from the sight of attackers by encrypting it through the threshold, time lock, or SGX. 

● Users may use protected transaction options like Taichi network or Flashbots. Given that users will be required to put their trust in the platform operators.  

● Formulation of a decentralized content layer that contains proper transaction orders along with root causes. These solutions seem to be promising approaches to deal with MEV. However, if any of these do not solve the actual issue, they will not be helpful in the long run.

Though decentralization takes patience, vital computing resources and is expensive. The results from such a framework might turn out to be the best solution to bring equity in the Ethereum market. But, in case the decentralization layer becomes highly vulnerable and unfair. There is no way it would be functional for a more extended period. 

Conclusion 

For an ordinary Ethereum user, the issue of MEV can be the worst problem they have ever come across within the network. Usually, MEV opportunists tend to draw in towards the AMM transaction that comprises high value. In such circumstances, users may help limit slippage, eliminating or lowering the MEV attacks. Ethereum members are trying to opt for more transparency during Miner Extractable Value in the network.