Centralization Concerns Arise as Two Block Builders Control 88.7% of Ethereum Blocks

In a development that has sparked widespread concern within the Ethereum community, two block builders, Beaverbuild and Titan Builder, produced 88.7% of Ethereum mainnet blocks during the first two weeks of October 2024, according to a report by Cointelegraph. This overwhelming concentration of block production has raised red flags about potential centralization risks in Ethereum’s decentralized network.

While Toni Wahrstätter of the Ethereum Foundation attributes this trend to private order flow (XOF), which limits competition among builders, some argue that the proposer-builder separation (PBS) mechanism implemented by Ethereum helps mitigate these risks. However, critics warn that despite PBS, powerful validators and the influence of Miner Extractable Value (MEV) incentives could still pose significant threats to the network’s decentralization.

Understanding the Role of Block Builders in Ethereum

What Are Block Builders?

Block builders are entities responsible for constructing blocks on the Ethereum network by selecting and ordering transactions. After constructing a block, the builder proposes it to a block proposer (validator), who then appends it to the blockchain. This division between block construction and validation is part of Ethereum’s proposer-builder separation (PBS) model, introduced to increase decentralization and security by separating the roles of validators and builders.

Proposer-Builder Separation (PBS)

PBS was implemented to prevent validators from monopolizing transaction selection and block construction, which could lead to centralization risks. By allowing specialized block builders to focus on constructing efficient blocks while validators propose them, PBS encourages competition and reduces the likelihood of any single entity controlling the network.

The Centralization Concern: Two Builders Control 88.7% of Blocks

Beaverbuild and Titan Builder Dominate Block Production

During the first half of October 2024, Beaverbuild and Titan Builder collectively controlled 88.7% of Ethereum’s block production, raising alarms about potential centralization in the network. While Ethereum was designed to promote a decentralized ecosystem, the disproportionate control exerted by these two entities threatens to undermine the very principles on which the network was built.

Private Order Flow (XOF) and Its Impact

Toni Wahrstätter from the Ethereum Foundation suggests that this concentration is largely driven by the use of private order flow (XOF), a mechanism that allows certain builders to gain access to privileged transaction data before it becomes publicly available. This gives them a competitive edge over other builders, as they can prioritize and include the most lucrative transactions in their blocks, further cementing their dominance.

Private order flow creates an uneven playing field by restricting access to transaction flow, limiting competition among block builders and enabling a small number of builders to control a significant portion of block production. This has sparked debates about the fairness and transparency of the Ethereum block-building process.

Differing Perspectives on the Centralization Risks

Ryan Lee: Proposer-Builder Separation Mitigates Risks

Ryan Lee, a researcher at Bitget Research, argues that despite the dominance of Beaverbuild and Titan Builder, Ethereum’s proposer-builder separation mechanism helps to mitigate centralization risks. He points out that since proposers (validators) and builders operate independently, block builders cannot prioritize transactions based on personal preferences. This separation, according to Lee, ensures that validators still have a role in maintaining decentralization, even if a few builders dominate block construction.

Concerns Over MEV Exploitation

On the other hand, some critics warn that the centralization of block building could still have a profound impact on the network, especially when combined with Miner Extractable Value (MEV) incentives. MEV refers to the profits that miners or validators can extract by reordering, including, or excluding transactions in a block. Powerful validators and builders can exploit these incentives to their advantage, potentially distorting transaction processing and impacting the fairness of the network.

By controlling a large portion of blocks, dominant builders like Beaverbuild and Titan Builder could exert undue influence over which transactions are processed and how MEV is distributed, further concentrating power within the network and undermining Ethereum’s decentralization goals.

Implications for Ethereum and Decentralization

Potential Risks to Ethereum’s Security and Fairness

The dominance of two block builders in Ethereum’s block production poses several risks to the network’s security and fairness:

1. Reduced Competition: When a few entities control the majority of block production, it limits competition and reduces the overall efficiency of the network. This lack of diversity in block builders could lead to slower innovation and higher transaction fees.
2. Increased Vulnerability to Exploits: Centralization increases the risk of coordinated attacks or exploits. If a small number of builders collude or are compromised, they could potentially manipulate transaction ordering or censor transactions, undermining the security of the network.
3. MEV Centralization: With dominant builders controlling the majority of blocks, they also capture a disproportionate share of MEV. This could lead to a concentration of profits among a few entities, further exacerbating centralization concerns and potentially harming the network’s economic fairness.

The Role of Validators in Decentralization

Validators still play a crucial role in Ethereum’s decentralization, even with PBS in place. While block builders are responsible for constructing blocks, validators ultimately decide which blocks are added to the blockchain. By maintaining a diverse and distributed network of validators, Ethereum can offset some of the centralization risks posed by dominant block builders.

However, if validators begin to align with dominant builders in search of higher MEV rewards, this could further concentrate power and undermine the decentralization of the network.

Possible Solutions and Next Steps

Increasing Transparency in Order Flow

One potential solution to the centralization issue is to increase transparency around private order flow (XOF). By making transaction flows more accessible to all builders, Ethereum could level the playing field and promote fair competition among block builders. This would reduce the ability of a few builders to monopolize block production and improve decentralization.

Promoting Diversity Among Block Builders

Encouraging more entities to participate as block builders is another potential solution to the centralization problem. This could be achieved by reducing barriers to entry, providing incentives for smaller builders, or implementing policies that limit the dominance of any single builder. By promoting diversity among builders, Ethereum can enhance decentralization and improve network security.

Reassessing MEV Distribution

To address the concentration of MEV among dominant block builders, Ethereum could explore alternative methods of distributing MEV more equitably across validators and builders. This would reduce the incentive for validators to align with powerful builders and help maintain decentralization in the network.

Conclusion

The recent dominance of Beaverbuild and Titan Builder, controlling 88.7% of Ethereum’s block production, raises significant concerns about centralization in one of the world’s most widely used blockchain networks. While the proposer-builder separation (PBS) mechanism provides some safeguards, the concentration of block-building power—exacerbated by private order flow (XOF) and MEV incentives—poses risks to Ethereum’s decentralization, security, and fairness.

As the Ethereum community continues to grapple with these challenges, it will be critical to explore solutions that promote competition, transparency, and diversity within the network. Maintaining Ethereum’s decentralized ethos is essential to ensuring its long-term success and resilience in the face of evolving market dynamics.

To learn more about the challenges facing decentralized networks and how blockchain technology is evolving, explore our latest news article, where we discuss the key trends shaping the future of Web3 and decentralized finance.