Cryptocurrency has become far more popular and more widely used in recent years. As a result, it is good to know as much about it as possible. This is particularly true if you are someone who is interested in cryptocurrency or someone who uses it on a regular basis, either for business or for your own personal use.
Some businesses even allow you to pay for their goods or services via cryptocurrency these days. This highlights the growing acceptance of cryptocurrency in the modern age of business. With all that in mind, here is what you should know about MEV as it relates to cryptocurrency.
What Is MEV?
The term MEV is an acronym for maximal extractable value. This is a common term among those who are interested in cryptocurrency. Maximal extractable value means how much cryptocurrency miners can extract while moving around transactions when creating a block on a blockchain network.
The maximal extractable value is sometimes called an invisible tax on users that miners collect from them. MEV is a reasonably recent phenomenon and a number of groups are trying to decrease the risks that are related to this phenomenon. MEV is most commonly associated with the cryptocurrency Ethereum, but it is not limited to only that cryptocurrency.
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How Do You Extract MEV?
You can extract MEV in a number of different ways from block production when you use a network such as Ethereum. The first instance of MEV happened in proof-of-work. In this context, proof-of-work referred to cryptocurrency miners controlling the inclusion of transactions and their order in a block. Due to this fact, the term MEV was originally an acronym for miner extractable value. However, given that Ethereum will soon shift to proof-of-stake and miners are not the only ones receiving part of the MEV, this acronym was later changed to maximal extractable value.
Another party that receives some of the MEV is searchers and searchers use tools in order to track transactions as part of this process. On a related note, one of the methods of extracting MEV is known as front-running. This consists of searchers using bots called centralized front-runners to look through the blockchain network’s public waiting pool, aka the mempool, for profitable transactions.
After the bot finds a profitable transaction, it copies the user’s transaction and adds a higher transaction fee, so miners select that transaction instead of other ones. This is a common method of MEV extraction. However, there are several other methods of MEV extraction.
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Is MEV A Positive Or Negative Phenomenon?
As with many questions related to cryptocurrency, the answer is not straightforward. MEV can be used in a harmful way, but it does provide benefits for miners and users and there are efforts underway to reduce its potential negative effects. Overall, it is a positive phenomenon and is likely to remain relevant within the realm of cryptocurrency for some time. Flashbots is one of the major efforts underway to improve the process of MEV for miners and users. You can learn more about Flashbots by checking out this page.