Examining the Challenges and Possibilities of Encrypted Mempools

Encrypted mempools have emerged as a potential solution to mitigate Miner Extractable Value (MEV) issues, but they come with their own set of complexities and challenges. According to a16z crypto, while encrypted mempools aim to protect transaction privacy and integrity, they are not a universal remedy for MEV.

Understanding Encrypted Mempool Proposals

The general framework for encrypted mempools involves users broadcasting encrypted transactions, which are then committed on-chain. Once the block is finalized, these transactions are decrypted and executed. However, the decryption process poses significant challenges, such as determining who decrypts and handling scenarios where decryption fails.

One naive approach suggests users decrypt their transactions, but this can lead to speculative MEV, where attackers attempt to guess the contents of encrypted transactions to extract value. Implementing penalties for failing to decrypt could deter such behavior, but this introduces complexities in execution and potential costs for honest users during network failures.

Approaches to Secure Decryption

To ensure future decryption capability, several methods have been proposed:

• Trusted Execution Environments (TEEs): Transactions are encrypted to a key held by a TEE, which can decrypt them after a deadline. TEEs reduce on-chain spam but require trust in the hardware.
• Secret-sharing and Threshold Encryption: Transactions are encrypted to a key shared by a validator committee, requiring a threshold for decryption. This approach can be more privacy-preserving but involves substantial work for the committee.
• Time-lock and Delay Encryption: Transactions are encrypted to a key hidden in a time-locked puzzle, ensuring decryption only after a set time. This method requires significant computational resources and proper incentives for participants.
• Witness Encryption: A theoretical approach where transactions can only be decrypted by those who solve a specific NP relation. While powerful, practical implementations are currently lacking.

Evaluating the Viability of Encrypted Mempools

The viability of encrypted mempools depends on balancing privacy, security, and practicality. Each method has its advantages and limitations, with varying levels of trust and computational requirements. For example, TEEs offer simplicity but rely on hardware trust, while threshold encryption shifts trust to validator committees.

Further research and development are required to address these challenges, especially in creating practical implementations of advanced cryptographic techniques like witness encryption. As blockchain technology evolves, the exploration of encrypted mempools continues to be a critical area for enhancing transaction security and protecting against MEV.