The Dark Side of Ethereum Centralization: Dominance of Block Builders and Its Implications

Ethereum centralization occurs when a small group of validators or block builders dominate the network, controlling a disproportionate amount of the block production and transaction validation process.

Recent investigations highlight Ethereum block producers engaging in Maximal Extractable Value (MEV) tactics to maximize their profits from decentralized finance (DeFi) transactions, potentially compromising the network's decentralization and fairness. Exploiting the Best Profit Potential Through Maximal Extractable Value (MEV) Practicesmaximal extractable potential of block producers known as MEV represents the best profit they can obtain through transaction order manipulation within blocks under Proof-of-Work (PoW) mining or Proof-of-Stake (PoS) validation. This category of MEV includes three techniques: front-running, back-running, and sandwich attacks that usually result in unfavorable outcomes and higher transaction costs for regular users. Despite this fact, since Ethereum transitioned to Proof-of-Stake in September 2022 MEV extraction has reportedly stolen over 300,000 ETH in funds according to DeepChain's analysis.

The Dark Side of Ethereum Centralization: Dominance of Block Builders and Its Implications

Ethereum is a blockchain network that aims to be decentralized but recent studies show that the broad validator network of Ethereum is facing a concerning pattern of block production becoming increasingly centralized. Block builders built 80% of Ethereum blocks during the period from October 2023 to March 2024 with three key builders—Blockhash, Flashbot and Bepro—holding the majority control. Among them Blockhash is the leading builder having constructed around 35% of new blocks on average since October 2023 while Bepro and Flashbot each built roughly 20% to 25% of the blocks.

The block producers who participate in the Proposer-Builder Separation (PBS) framework are able to distribute this work through a separation framework designed to fairly distribute rewards. However the report explains that the three main builders were able to use their dominant position to outbid others at block auctions leading to greater control over blocks produced. This situation arose because of the competitive nature of the architecture and it contributed to a single entity gaining an overwhelming presence in the market.

The implication is that the three main builders were able to accrue more capital allowing them to bid higher for blocks and thereby acquiring more blocks and further strengthening their market position in a snowballing effect that snowballed into a nearly monopolistic environment.

A Final Note: Ethereum Price Prediction Could Be Impacted By MEV Exploitation

The last five-minute candlestick chart of Ethereum price displays an uptrend following a strong rebound from its crucial support at $1,875. The price maintained an upward trajectory by forming progressively higher lower positions before it crossed the resistance level at $1,915 and reached a peak of around $1,950. When RSI dropped into oversold areas it signaled buying opportunities and signaled selling conditions when approaching overbought regions. Bulls signs emerged from multiple golden crossovers within the MACD pattern which corresponded to higher price points and death crosses predictably signaled small price drawdowns.

At present Ethereum keeps its price above the broken resistance which is now operating as support for the market. Persistent bullish market behaviors and sustained ETH prices above $1,930 could result in a price re-evaluation of the recent $1,950 high before reaching the important price milestone of $2,000. A decline below this support could indicate a steeper fall to $1,900 and potentially reach $1,880 if market sellers exert pressure through a $1,915 price break. Given that both the RSI and MACD indicators currently display neutral signals market sentiment can determine the breakout direction.