Demystifying Private Transactions and Their Impact in PoW and PoS Ethereum

TL;DR

This paper presents the first large-scale, cross-era empirical study of Ethereum private transactions in both PoW and PoS, addressing their characteristics, usages, and monetary impacts. Using two 15.5-month datasets from the PoW and PoS eras, it reveals a substantial rise in private-transaction activity after the PoW-to-PoS transition (from 2.45% to 7.86% of transactions) and a shift in how these transactions are incorporated into blocks. The authors document persistent MEV extraction, money redistribution, and DeFi interactions via private channels, with private-transaction usage in DeFi attacks increasing under PoS and MEV patterns evolving due to lower costs and the PBS architecture. The findings highlight a more diverse and less centralized private-transaction ecosystem under PoS, with important implications for users, block builders, relays, validators, and DeFi security.

Abstract

In Ethereum, private transactions, a specialized transaction type employed to evade public Peer-to-Peer (P2P) network broadcasting, remain largely unexplored, particularly in the context of the transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) consensus mechanisms. To address this gap, we investigate the transaction characteristics, (un)intended usages, and monetary impacts by analyzing large-scale datasets comprising 14,810,392 private transactions within a 15.5-month PoW dataset and 30,062,232 private transactions within a 15.5-month PoS dataset. While originally designed for security purposes, we find that private transactions predominantly serve three distinct functions in both PoW and PoS Ethereum: extracting Maximum Extractable Value (MEV), facilitating monetary transfers to distribute mining rewards, and interacting with popular Decentralized Finance (DeFi) applications. Furthermore, we find that private transactions are utilized in DeFi attacks to circumvent surveillance by white hat monitors, with an increased prevalence observed in PoS Ethereum compared to PoW Ethereum. Additionally, in PoS Ethereum, there is a subtle uptick in the role of private transactions for MEV extraction. This shift could be attributed to the decrease in transaction costs. However, this reduction in transaction cost and the cancellation of block rewards result in a significant decrease in mining profits for block creators.

Figures (7)

• Figure 1: Count of private transactions per month/block.
• Figure 2: Top token exchange pairs of private transactions.
• Figure 3: Token flow number per private transaction.
• Figure 4: Summary of DeFi attacks and private transactions.
• Figure 5: Transaction fee per private transaction.