30s Summary

Satoshi Nakamoto’s blockchain model encounters problems with privacy and security, with transaction order manipulation or “front-running” being a key issue. A solution to this lies in new protocols developed in recent years. The Fair Sequencing Services (FSS) and First-In-First-Out (FIFO) systems ensure transactions are processed in the order received, preventing potential manipulation. Additionally, privacy protocols can hide transaction data, making it difficult for miners to interfere with transactions for profit. Examples include the Ring Confidential Transactions (RingCT) and stealth addresses which help to maintain privacy and combat the issue of front-running.

Full Article

So, you know Satoshi Nakamoto is brilliant, right? But there’s one area where he slipped up a bit. Privacy. He left doors open and now, let’s say, it’s a bit chaotic. The blockchain was meant to be clear as day, set in stone, and democratic. Sounds perfect, right? Not quite.

Security and privacy go hand in hand for any financial system. But the irony is blockchain, this transparent and public data ledger, is totally against the concept of privacy which can be a problem.

So why does it matter to you? You might think, well, the only visible info is just jumbled letters and numbers. But here’s the thing, this can mess up your transactions in real time.

Let me give you a hypothetical: Imagine you’re buying a token on Uniswap, you place your order and boom, you get less of the token than you expected. You discover someone else made a large buy just before you, which upped the price with a big sell-off after your order was placed. Congratulations, you’ve been “front-run”.

You might be like, “Front-run? I was the fastest runner in school, ain’t no one beating me!” Well, let me break it down:

Maximal extractable value (MEV) is the maximum profit someone part of the blockchain production process can make by messing with the order of transactions.

This basically means the people who organize and validate transactions on the blockchain (think miners or validators) can choose which transactions to put through and they can do it however they like. For example, in early 2021, people were making a total of $78 million through MEV on Ethereum which later soared to $554 million by end of the year. Now, it’s over $600 million.

But here’s the good news, new protocols have been developed in the past few years to solve this problem. Some mechanisms, like Fair Sequencing Services (FSS) and First-In-First-Out (FIFO), ensure that transactions are processed in the order they are received. This makes it pretty much impossible for miners to meddle with the order of transactions for their own gain.

Another cool solution is privacy protocols. It makes transaction data invisible, so miners can’t mess with transactions for profit. For instance, Ring Confidential Transactions (RingCT) hide important transaction info like the amount, sender and recipient. Similarly, stealth addresses create unique, one-time addresses for each transaction, hiding the receiver’s identity making it harder to target high-value transactions.

These sort of privacy technologies keep our business private, as it should be, in the growing ecosystem. And also, kinda importantly, helps to fight against the sneaky MEV practices turning your footprint on the blockchain invisible.

About the author:

Pavel Nikienkov, is not only the co-founder at Zano but he’s also an expert in launching privacy-focused software products and has been a project manager. He’s been swimming in the blockchain privacy ecosystem for over five years and has been doing wonders the whole time.