An increasing number of Ethereum users are turning to private transaction pools, known as dark pools, in order to conduct their transactions more securely. This choice can have significant impacts on the network’s overall transparency and centralization tendencies.

This trend of private transactions to avoid the MEV (maximum extractable value) effect has seen a notable increase on the Ethereum network, according to new research compiled by the company Blocknative.

MEV means that margins are withdrawn from trades waiting for their turn to be traded by fast-acting software bots. These bots earn additional profit by quickly capturing transactions waiting for their turn, and this creates a negative impact on the network.

Private transactions are sent directly to validators or block proposers, making the transaction process private, unlike using public mempools.

Private transactions on Ethereum account for approximately half of total gas usage. While this rate was approximately 7% in September 2022, when Ethereum switched to the proof-of-stake network, it has increased to approximately 15% since the beginning of 2024. This increase indicates that private processes are more complex and gas-intensive.

Gas represents the cost of conducting transactions on the blockchain, and private transactions generally require more computing power, causing such transactions to be more costly.

This trend means that the “private transaction flow is accessible only to authorized network participants.” This could lead to fewer sophisticated players winning more rewards, thus leading to the centralization of a decentralized structure. As Blocknative noted in its blog post, this could harm the principle of openness and equality, which are the fundamental principles of decentralized networks.

“There are a small number of actors who can see the private stream,” says Blocknative CEO Matt Cutler. “Certain people can see some information while others cannot, and this creates opportunity and advantage.” This means that private information in the transaction flow is visible only to certain people and that this information is used to their advantage. This can create an unfair competitive environment on the network, giving some users an advantage over others.

According to data analysis, the prevalence of private transactions is measured by the number of transactions and is currently around 30%. This rate was around 4.5% in 2022, indicating that private transactions have increased significantly over time. However, specialized processes are often more complex and therefore use more gas. This can lead to increased transaction costs on the network and higher costs for users.

Disadvantages of public trading include fee rates being more volatile and unpredictable, changing based on network demand. “Only certain actors, like block builders, can see what’s happening on the network,” Cutler says.

“These actors have special access to certain information. That gives you an advantage. It’s a big fact of life.”

This situation raises significant concerns in terms of the reliability and transparency of blockchain networks. The rise of private transaction flows shows that the fundamental principles of decentralized systems are under threat, raising questions about how such systems will evolve in the future.