Miner Extractable Value (MEV)
What is Miner Extractable Value (MEV)?
Miner Extractable Value (MEV) refers to the value that can be extracted by miners in a blockchain network beyond their rewards for verifying transactions and adding blocks to the blockchain. MEV refers to the potential profits that a miner can make through certain actions such as front-running, censorship, and manipulation of smart contract execution.
For example, a miner may exploit a security vulnerability in a smart contract to extract additional funds before anyone else can do so. Or a miner might choose to prioritize certain transactions over others to extract additional value, such as by prioritizing a high-fee transaction at the expense of lower-fee transactions.
MEV has become a concern in the blockchain community as it can lead to centralization of the network and undermine the trust and security of the system. The extraction of MEV is not inherently bad, but it is important for blockchain networks to have mechanisms in place to prevent the abuse of MEV for malicious purposes. Some blockchains, such as Ethereum, have implemented solutions to minimize the potential for MEV exploitation, such as the introduction of a mechanism to split the rewards between miners and the network.
Miner extractable value (MEV) is like finding extra money in a video game. Imagine you are playing a game where you collect coins and gems to score points. A miner who finds MEV is like finding an extra stash of coins or gems that were not intended for them to find. They can then use this extra stash to make more points or progress in the game, even though they didn't earn it in a fair way. Just like in real life, finding MEV is not considered fair play and can sometimes be against the rules of the game.
Front-running: In this example, a miner might monitor the network for high-value transactions, such as large trades on decentralized exchanges, and then prioritize those transactions in the block they are mining. By doing so, the miner can take advantage of price movements caused by the trade and extract additional value.
Censorship: Another example of MEV is censorship, where a miner might choose to exclude certain transactions from a block they are mining, either for their own financial gain or for other reasons. For example, a miner might choose to exclude a transaction from a competing miner to reduce their competition.
Smart Contract Manipulation: A miner can also extract MEV by manipulating the execution of a smart contract. For example, a miner might execute a contract in a way that allows them to extract additional funds before the contract is executed as intended. In this scenario, the miner is able to extract value by exploiting a flaw in the contract's code.