One of the points of greatest interest for crypto miners and validators in recent months has been MEV, or “maximal extractable value” (the term can also stand for “miner extractable value”). Sometimes MEV is referred to as the “invisible tax” miners collect from participants in a crypto economy by reordering and manipulating transactions in the validation process. But what exactly is MEV, how does it work, and what are some of its potential impacts on crypto ecosystems?

Profit in Transaction Manipulation

In a cryptocurrency system, regardless of the type of consensus mechanism used to confirm transactions, pending transactions are held in what is known as the “mempool,” a waiting area that is visible to the public. Miners or validators in the system then select transactions, order them, and make a block, which is subsequently validated and added to the blockchain.

In 2014, an algorithmic trader using the handle Pmcgoohan predicted that miners might be able to manipulate the transactions in a mempool in order to derive a profit. They wrote that “miners can see all the contract code they run…and the order in which transactions run is up to individual miners…what is to stop front running by a miner in any marketplace implementation?”

Origin of the Term “MEV”

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Author: Nathan Reiff

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