- Blocknative Research
- Pros and Cons of Private Transactions
- Impact on Network Dynamics
With the increase in Ethereum users opting for private transactions, concerns about the loss of transparency and a move towards centralization are emerging.
Blocknative Research
Recent research by Blocknative, a firm specializing in minimizing the impact of maximal extractable value (MEV), highlights this shift. MEV refers to the profits made by bots that quickly execute trades to exploit margins from transactions in the public mempool, which is where transactions wait before being processed on the network.
Pros and Cons of Private Transactions
Private transactions, which are sent directly to validators or block proposers rather than through public mempools, now account for roughly half of the total gas usage on Ethereum. This represents a significant increase from just 7% in September 2022, when Ethereum transitioned to a proof-of-stake network. Since the start of 2024, private transaction usage has jumped from about 15%.
Impact on Network Dynamics
While private transactions offer a way to avoid front-running bots, they also limit visibility to a select few network participants, potentially centralizing control. This could lead to a situation where a small group of sophisticated players reaps the majority of rewards. “You have a small number of actors who can see the private flow,” said Blocknative CEO Matt Cutler. “Certain people can see stuff, and certain people can’t, and that creates opportunity and advantage.” Traditionally, the prevalence of private activity on Ethereum has been measured by transaction count, which currently stands at around 30%, up from 4.5% in 2022. However, Blocknative points out that private transactions tend to be more complex and therefore require more gas, leading to a higher impact on network dynamics. “By focusing on the amount of gas used by private transactions, we gain a more accurate understanding of network dynamics,” Blocknative noted in its blog post.
The rising popularity of private transactions on Ethereum, despite their benefits in avoiding front-running bots, raises concerns about transparency loss and potential centralization. It is important to keep an eye on how this situation develops to ensure a balance between privacy and transparency in the network.
