Pantera Partner: Analysis of Decentralized Sorting Mechanism

Author: Paul Veradittakit, Managing Partner, Pantera Capital; Translation: Jinse Finance 0xxz

In the ever-changing blockchain technology landscape, the pursuit of scalability and enhanced transaction throughput has led to the emergence of so-called Layer-2 solutions, or L2. These innovative enhancements are designed to strategically mitigate inherent limitations present in traditional blockchain designs. With the rise of L2 solutions to provide faster and more resource-efficient transaction processing, a new challenge arises and that is the necessity of efficient transaction sequencing.

In order to solve this efficiency challenge, a centralized sorting mechanism is mainly adopted. These coordination mechanisms manage the arrangement of transactions in the distributed network. However, the harmony sought between the idea of decentralization at the bottom of the blockchain and the centralization in these ordering mechanisms has led to a remarkable breakthrough: the birth of a decentralized ordering mechanism. This new approach aims to increase scalability, strengthen security, and establish a truly decentralized nature in the blockchain space.

What is centralized transaction ordering?

The centralized transaction ordering mechanism is a mechanism adopted by applications deployed on the blockchain to ensure the orderly and secure processing of transactions. Unlike the decentralized ordering inherent in blockchains, which rely on consensus algorithms and distributed networks, these orderers operate in a centralized environment overseen by a single authority. Here is an overview of their functionality:

• Centralized Control: In a centralized system, a single entity or authority exercises control over a database or application. This entity is responsible for overseeing transaction ordering and instructing L2 in what order to execute those transactions.
• Sequential Processing: Transactions are processed sequentially and occur consecutively. Determining this order is typically influenced by variables such as timestamps, commit times, MEV withdrawals, fees paid by users/block builders, or priorities assigned by a central controlling entity.
• **Trust Reliance: **Users relying on the system must trust the central entity to process transactions fairly and accurately. However, there may be potential for manipulation or malicious behavior by such an authority that could compromise the integrity of the transaction itself.

Advantages of a decentralized sorter

Decentralized orderers offer a number of compelling advantages stemming from their innovative approach to transaction management. By fostering trust and transparency, these orderers establish an immutable and publicly accessible ledger that enables autonomous verification of transaction accuracy and order, eliminating the need for centralized oversight. They resist tampering, ensure data integrity, virtually eliminate the possibility of fraud, and impart authenticity to recorded information. In addition, the decentralized orderer advocates the concept of anti-censorship and anti-monopoly, making transactions based on network consensus rather than central authority, and fostering an open and inclusive ecosystem.

In addition to their security features, decentralized orderers are able to resist single points of failure and malicious intrusions, thereby strengthening their resilience. This resilience facilitates the participation of participants from diverse geographic regions, fostering an environment of global accessibility and financial inclusion. Thus, this approach simplifies operations, automates the verification of transactions, and reduces reliance on intermediaries, thereby increasing efficiency and significantly reducing costs. The adaptability of decentralized orderers drives innovation, enabling the development of applications such as smart contracts and decentralized platforms that revolutionize traditional business models and economic paradigms. Aligning closely with the principles of decentralization, these orderers enhance data ownership and solidify their role as catalysts of change capable of reshaping industries and redefining trust in the digital age.

Main advantages

• Trustless environment: The decentralized orderer removes the need for participants to individually trust a central authority. Transactions are verified and consensused across a distributed network of nodes, promoting transparency and reducing the risk of manipulation.
• Immutable: In a decentralized ordering, transactions are recorded in an unalterable and inviolable manner. Once integrated into the blockchain, they become impossible to modify or delete unless the network reaches consensus, enhancing data integrity.
• Resistant to censorship: Traditional sorters may be vulnerable to censorship or interference by a central authority. Decentralized orderers counteract this vulnerability by making transactions append to the blockchain provided they comply with the consensus rules dictated by the network.
• ** Resilience: ** Traditional sequencers are vulnerable to threats from a single point of failure. In contrast, in a decentralized system, a widely distributed network architecture enhances resilience against attacks or the failure of individual nodes.
• Reducing middlemen: Traditional orderers often require middlemen to verify and authorize transactions. Conversely, decentralized orderers have the potential to reduce or eliminate the need for middlemen, enabling cost-effectiveness and increased operational efficiency.

Types of decentralized sorting

Let's break down some exciting solutions, categorized according to the builder-proposer aspect of ordering mechanism design.

Builder

**Schnorr ordering: **Schnorr ordering introduces a novel method for confirming transactions, moving away from traditional methods of grouping transactions. In this innovative system, individual transactions are assigned a unique index, initiating a collaborative process between orderers (or validators) and senders. Together, they create a Schnorr signature associated with a transaction index, which is proof of the sender's intent to include that particular index in the blockchain ledger. The technology could bring multiple benefits, including increased efficiency, enhanced privacy, and smoother transaction sequencing. In addition, it has the potential to provide new solutions in dealing with the permutation and ordering of transactions in blockchain networks.

**Suave:**Suave is an innovation introduced by Flashbots as a response to the centralization challenges posed by Miner-Extractor Value (MEV). At its core, Suave proposes a novel concept: the Single Unifying Auction for Value Expression. This innovative solution aims to reshape the block building landscape with a focus on maintaining the principles of decentralization. Suave's framework consists of three key components: the Universal Preference Environment, which empowers users to express preferences to guide execution; the Optimal ution Market, a complex network of executors that competes Provides best execution, including MEV capture; and Decentralized Block Building, a network that translates aggregate preferences into blocks across multiple domains. In the Suave architecture, these components are fused in a decentralized ecosystem where users, validators, builders, and searchers collaborate seamlessly across multiple chains. In doing so, Suave not only addresses centralization risks, but also moves the crypto space towards a more fair and decentralized trajectory, thus reshaping the future of blockchain technology.

To propose

**Espresso Sort:**Espresso Sort is a decentralized network customized for Rollup, whose main goal is to provide safe, fast throughput and minimal latency in scheduling and ensuring transaction availability. This ordering is conceived as a valuable asset, accessible to both optimistic and zk-Rollups, allowing Rollups to be decentralized while taking advantage of the benefits of interconnectivity powered by a common orderer layer is realized.

**Based sorting: **Rollup-based sorting mechanism utilizes the sorting capability of the underlying Layer 1 (L1) blockchain. These Rollups synchronize their block ordering with L1, enabling seamless collaboration between L1 proposers and the Rollup ecosystem. The result is a set of advantages: strong liveness guarantees, efficient settlement process, resistance to MEV-driven censorship, network effect protection, and compatibility with existing L1 infrastructure. The simplicity of their architecture, coupled with recent innovations such as proposer-builder separation (PBS), yields gas efficiency and simplified development. Economic alignment with the L1 ecosystem enhances security and economic scarcity, despite forgoing some MEV revenue. These Rollups retain sovereignty through governance tokens and base fees. The term "Base Rollup" interestingly echoes their dependence on the L1 base. This innovation enhances the decentralized consensus while embodying the core concept of the blockchain.

in conclusion

From scalability limitations to the emergence of Layer-2 solutions, the process has undergone a profound transformation. The central role of ordering mechanisms in managing the order of transactions is critical to the efficiency and effectiveness of these solutions. As the blockchain community continues to embrace the principles of decentralization, the rise of decentralized ordering mechanisms offers a promising path forward. By striking a balance between increased scalability and true decentralization, the decentralized ordering mechanism symbolizes the maturity of blockchain technology, ushering in an era of a more inclusive, secure and resilient digital future.