The much-awaited Ethereum update will introduce new players known as builders to the blockchain ecosystem, a move that may potentially change the power dynamics of what is perhaps the most significant cryptocurrency network from a business perspective.
Currently, networks of computers called “miners” choose transactions from a certain data pool and group them into blocks that are then uploaded to the blockchain. The elimination of the miners is a component of a strategy to cut back on energy usage. The builders will compile transactions into blocks following the next “Merge” update in September, which they will then transmit to the validators. The sequence of the blocks that make up the updated blockchain will be approved by the validators.
This ostensibly nerdy tweak, which is a component of the MEV-Boost software upgrade, may, at least initially, make Ethereum more centralized. Only a small number of participants have committed to acting as builders, even though there are currently over 416,000 validators waiting in line to order transactions. The biggest manufacturer of open-source software used by trading bots is Flashbots.
By allowing their transactions to be front-ran and generally getting around others, flashbots have already become the main method used by miners to extort fees from merchants. Because of worries that Flashbots or other such organizations would have too much influence if a big wallet started sending all transactions to one builder, other players are thinking about becoming builders.
BloXroute Labs’ CEO, Uri Klarman, claimed that if wallets start sending transactions directly to a small number of block builders, decentralization would be killed. BloXroute Labs has a network of servers that enables traders to submit transactions to miners more quickly. According to him, the network processes about 40% of all trading activity from decentralized financial applications that enable coin lending, borrowing, and trading.
According to Klarman, a potent digital wallet like MetaMask, which enables users to buy, trade, and receive cryptocurrencies, might end up being a “kingmaker.” With 30 million users, MetaMask is the most widely used non-custodial wallet.
According to Klarman, a wallet service may choose to prefer one builder above all others or even opt to take on the role of a builder, regulating the flow of transactions.
ConsenSys, located in New York and founded by Ethereum co-founder Joseph Lubin, is the company that owns MetaMask. The software company downplays the issue.
The worldwide product lead at MetaMask, Taylor Monahan, stated that the company “would never transfer all of MetaMask’s transactions to one builder or supplier.” “Being a portal to an interesting, lively, diversified, and equitable ecology, MetaMask derives its value. Because of this, MetaMask will constantly work to make decisions that support a strong and decentralized Ethereum.
The builder-validator role separation was initially intended to reduce the authority of validators and promote Ethereum’s decentralization.
However, there might be problems if there aren’t enough builders on the updated Ethereum chain. They could prevent some transactions from being added to blocks. After the US Treasury Department approved the mixer protocol earlier this month, Flashbots blocked Tornado Cash wallets.
Builders may potentially demand more fees if there aren’t enough of them, while validators make less. That may then influence how many validators decide to participate in sustaining the network. According to Flashbots, miners have made around $240 million so far using the transaction-reorganization service known as MEV. The fees are anticipated to contribute significantly to validators’ income as well.
To reach $1,640 as of 11:55 a.m. in New York, Ether increased by as much as 7%. This year, it has decreased by around 56%.
Builders might profit from the user’s order flow as well. A builder could purchase a long position in a certain token if they are aware that many users are making orders for that token.
Nathan Worsley compared it to “Robinhood, generating money off order flow,” a commission-free trading company. He claimed that Worsley and his colleagues, who profit from intricate transactions and transaction restructuring liquidations, are thinking about turning into builders.
“We’ll keep an eye on everything. We’ll take action if it approaches a centralized building world, said Blockdaemon’s Jonas Pfannschmidt, which operates validator nodes for clients.