As the Ethereum Merge is fast approaching, let’s round out our 3-part study series on the topic by discussing one of the most important changes to Ethereum’s mechanics which is proposed to be implemented after the Merge - Proposer-Builder Separation (PBS). It would be integrated with Danksharding and released several months after the Merge at the earliest.
What is it?
PBS is a proposed mechanic to be implemented after the Ethereum Merge where the job of building blocks on the network and validating them would be split up between two different entities, instead of miners doing both jobs as they do currently. The Merge will not address this problem right away, instead validators will just take the place of miners on the PoS network, but PBS proposes to later split this responsibility between block builders, and block validators.
A specific role of Builder would be created which would by necessity be a difficult task not practical for most users. At the same time becoming a validator would be made as easy as possible. This will mean that block building will become more centralized, while validation will become more decentralized, which is thought to be an ideal combination.
Proposer-Builder separation explained
In this implementation the builder would be a centralized and resource-intensive role, while the proposers (validators) will be able to do their job on a common laptop simply by staking their ETH and proposing the built block header which has the highest bid. This block can then be validated by the network.
As soon as a block is built, its header would be sent out for validators for approval, but not the body of the block. The whole body of the block is kept hidden at first for the purpose of MEV protection. If the body were revealed before validation, then another builder could see it and front run it by incorporating it into their block.
Because validators are required to vote on blocks without seeing the body, it is proposed that the builder will have to pay a bid fee to a validator to consider their block, this fee will be paid even if the builder cannot supply the full body in time to protect the network from being flooded with faulty blocks. Then once the block is validated other validators will vote for that block by building “on top” of it.
What problem does PBS solve?
One of the biggest drivers of the cost of using the ETH network right now is miner extracted value (MEV). As long as the builders and validators of blocks are the same entities, transactions can be front run and MEV will continue to be a problem.
While this type of front-running will probably never be totally eradicated, it is hoped that it can be greatly reduced with PBS, and also by shifting some of the value captured by MEV (as there will always be some) to validators who have staked their ETH on the network. This would increase the base APY for staking ETH and incentivize more long term holding.