Ethereum's New Algorithm Aims to Combat Insider Trading

An Ethereum researcher has proposed a new algorithm to combat insider trading on the network, aiming to address the growing issue of centralization. The algorithm, developed by Malik672, uses random allocation of transaction orders to mitigate the problem of Maximal Extractable Value (MEV), where dishonest actors exploit inside information to make profits on the market.

Recent data shows that the Ethereum network is far from decentralized. In the first two weeks of October 2024, 89% of Ethereum blocks were handled by only two block builders, Beaverbuild and Titan Builder. Although this figure has since dropped to 80%, it still indicates a significant level of centralization. Malik672's research highlights that this centralization persists despite Ethereum's shift to Proof of Stake (PoS) and the adoption of Prosper Builder Separation (PBS), which separates block proposing from building to address MEV disparities.

Malik672's system aims to decentralize block building by using a random generator to distribute the process to thousands of clients worldwide. This approach could have added benefits, such as optimizing mempool handling and faster transactions. The proposal introduces a decentralized random block proposal system, where all Ethereum clients, not just a handful of builders, construct blocks using a cryptographically random algorithm. Validators execute these blocks, achieving consensus via Byzantine Fault Tolerance (BFT), which ensures the network continues to run despite dishonest nodes polluting it with false information.

However, this approach may have major drawbacks that require extensive testing before implementation. One potential issue is large overhead problems from distributing the block building process to thousands of clients, which may increase the amount of computation needed and slow down the network. Additionally, there is an increased risk of Sybil Attacks, where a single bad actor could generate multiple fake clients to gain more inside information and MEV. Furthermore, decision-making complexity may increase as more block builders disagree on transactions, causing more problems for the Ethereum network.

Malik672 acknowledges that this system prioritizes fairness and full democratization over L2 precision, which may be a trade-off for networks valuing equity over efficiency. However, he suggests that redesigning the system for rollup-specific optimization could bridge the gap and make it a versatile contender in the Ethereum ecosystem.