Understanding the Constraints on Fairness in Blockchain Transactions

Introduction

This article evaluates how the limitations of the Condorcet paradox challenge the notion of perfect fairness in transaction ordering within blockchain consensus models.

Key Concepts

In distributed systems research, especially relating to Byzantine consensus and state machine replication, consistency and liveness are the two primary goals:

• Consistency: Ensuring all nodes agree on a uniform transaction sequence.
• Liveness: Keeping the system continually adding new transactions.

However, these factors do not prevent actors from altering transaction orders after they are received, especially in public blockchains.

Issues in Public Blockchains

Within public blockchains, issues arise as validators, block builders, and sequencers may manipulate their ordering privileges, often for financial gain. This phenomenon is known as maximal extractable value (MEV), which includes practices like frontrunning and sandwiching transactions. The sequence in which transactions are executed is critical for their validity and profitability within DeFi platforms. Therefore, ensuring the integrity of transaction ordering is essential for fostering trust and fairness.

Proposed Solutions

To combat this security vulnerability, the introduction of transaction order-fairness as a third critical consensus property has been advocated. Protocols based on fair ordering ensure transaction sequences reflect objective external factors like arrival times, thereby resisting manipulative reordering. This approach aims to minimize the power of block proposers, aligning blockchains closer to transparency and minimizing MEV.

The Condorcet Paradox

The Receive-Order-Fairness (ROF) model defines fairness as “first received, first output.” This principle holds that if numerous transactions arrive at most nodes before a different one, the original must come first in execution. Unfortunately, a universally accepted ordering is unattainable unless all nodes can communicate instantaneously, which leads to fundamental impossibilities.

Analyzing Hedera Hashgraph

Hedera utilizes a Hashgraph-based consensus mechanism intended to mimic ROF by assigning transactions timestamps based on the median of all nodes’ local times. Yet, this process is susceptible to manipulation, where a single adversarial node can alter its timestamps, skewing the final order despite honest participants receiving transactions correctly.

Practical Fairness Solutions

Given the theoretical impossibility indicated by the Condorcet paradox, various practical fair-ordering strategies have emerged that redefine fairness to maintain order integrity.

For instance, the Aequitas protocols introduced Block-Order-Fairness (BOF), which asserts that if a transaction is received earlier by a majority, it must be delivered in a block before or at the same time as others. While achieving BOF, the system acknowledges inherent transaction conflicts and organizes these into batches to sustain execution integrity.

Conclusion

Achieving ideal fairness in transaction ordering is a complex challenge underscored by real-world blockchain dynamics. Solutions like the Aequitas and Themis protocols strive to navigate these challenges, redefining fairness while keeping transaction integrity intact. Ultimately, true transaction-order integrity must be based on cryptographic principles embedded in the protocols, rather than on trust or reputation.