Taproot Wizards Developer Believes New Bitcoin Centralization Threat Emerging

The introduction of the Ordinals Protocol and the subsequent launch of BRC-20 tokens on the Bitcoin network have sparked significant discussions and opened up new avenues for developers and miners. However, according to Eric Wall, a developer and member of the Taproot Wizards organization, these developments also present potential risks of centralization for Bitcoin.

The Ordinals protocol is a system for numbering satoshis, giving each satoshi a serial number and tracking them across transactions. Simply put, ordinals allows users to make individual satoshis unique by attaching extra data to them.

Wall specifically highlighted the concept of miner extractable value (MEV) as a centralization risk within the Bitcoin ecosystem. MEV has long been a feature of Ethereum and refers to the ability of miners to strategically include or rearrange transactions in a block to maximize their profits.

For instance, miners can prioritize transactions that offer higher gas fees, thereby earning additional rewards. They can also engage in practices like frontrunning, where they anticipate and execute transactions ahead of other users. This allows them to take advantage of price fluctuations, such as buying a token before its value increases and then selling it for a profit.

Of note, these actions are just a few examples of the possibilities enabled by token protocols and smart contracts. Wall described the BRC-20 token protocol as introducing the potential for various actions within the Bitcoin ecosystem. While Bitcoin could already be tokenized using protocols like Omnilayer, extensions such as BRC-20 are now being developed due to the high market demand for these tokens. Consequently, people are interested in trading them and finding ways to profit from their transactions.

To support his argument, Wall pointed to recent events in Ethereum related to MEV. At one point, 80% of MEV bots using Ethereum validators were required to comply with US Office of Foreign Assets Control (OFAC) regulations. Moreover, a significant number of validators (88% in 2022) were leveraging MEV to increase their earnings.

Wall warned that if no action is taken, the Bitcoin mining pool that optimizes MEV utilization the most will become the largest, attracting more participants seeking higher profits. This concentration of processing power or hash rate in a single pool significantly raises the risk of centralization.

Furthermore, Wall expressed concerns about the lack of understanding among Bitcoin Core developers regarding MEV. He noted that the Ethereum ecosystem possesses more knowledge and experience in dealing with these issues due to their longer exposure, whereas Bitcoin developers are still relatively inexperienced in this regard.

TDR will have further coverage as events warrant.

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