Miner Extractable Value: An Insight
Miner Extractable Value (MEV) refers to a measure of the potential gain that a miner can make by reordering transactions within the blocks they produce. Due to the limited number of transactions in each block, miners have the full discretion in selecting which pending transactions in the Mempool, where all the valid transactions wait to be confirmed by the network, add in their block.
Mempool can be explained as a node mechanism of cryptocurrency that stores information of all unconfirmed transactions.
Miner Extractable Value
In general, miners order transactions by the highest gas fee (transaction fee) to maximize their profit, so they can technically reorder transactions to extract additional yield, creating what is known as Miner Extractable Value.
The most common form of MEV is ‘Front running’ by bots replicating users’ transactions by offering a higher gas price, so miners get a chance to pick more expensive transactions over others. For instance, even if one orders a specific transaction in the network first, miners always have the privilege to execute a trade at their own will, putting their transaction right before other users, making the later transactions fail. This type of value extraction happens as miners are only motivated by the amount of rewards they will obtain via completing of transaction.
Validators, also known as blockchain verifiers, are participants on a proof-of-stake blockchain and are responsible for verifying blocks to earn rewards as long as they stake the network’s token. In the centralized financial system, for example, a banker is responsible for verifying a transaction prior to the actual processing. In the decentralized financial system, particularly in the proof-of-stake network, validators check the accuracy and legal authenticity of a transaction and then add it to the blockchain.
The proof-of-work consensus model for validation requires specialized hardware, computational power, and a lot of energy consumption. However, the proof-of- stake model doesn’t require them as it works on the currency power by determining participation according to the coin supply, giving advantages to validators working safer and more efficiency than proof-of-work.
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