Taproot Wizards Developer Believes New Bitcoin Centralization Threat Is Emerging

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

TheOrdinalsprotocolisa system of numbering satoshis, giving each satoshi a serial number and following them through transactions. Simply put, ordinals allow users to make individual satoshis unique by attaching additional 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 within a block to maximize their profits.

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

It should be noted that these actions are just a few examples of the possibilities offered 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 like BRC-20 are being developed due to the high market demand for these tokens. Therefore, people are interested in trading them and finding ways to profit from their trades.

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

one of the most complex challenges in the history of bitcoins has been highlighted by the ordinals (and that’s not the bloat or spam part) and no one really engages in the discussion where it is really important

i wish more people would join me in this discussion pic.twitter.com/U9t54kdAvl

— Eric Wall Taproot Wizard #2 (@ercwl) May 20, 2023

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

Additionally, Wall expressed concern about Bitcoin Core developers’ lack of understanding regarding MEV. He noted that the Ethereum ecosystem has more knowledge and experience in dealing with these issues due to their longer exposure, while Bitcoin developers are still relatively inexperienced in this regard.

TDR will receive additional coverage if events warrant.

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