Proposer-builder separation, or PBS, is a concept in Ethereum that aims to improve the scalability and security of the network by dividing the responsibilities of block building into two separate roles: block proposers and block builders. 

This idea emerged during the development of Ethereum 2.0, which is a significant upgrade to the Ethereum blockchain designed to increase its throughput and efficiency. PBS is in an advanced research stage and will likely be finalized and implemented in 2024 or later.  

What Is Proposer-Builder Separation? 

In Ethereum’s previous Proof of Work or Proof of Stake system, miners or validators are responsible for proposing new blocks and building the contents of those blocks, including ordering and validating transactions. 

The proposer-builder separation framework divides these responsibilities into two distinct roles. Block builders are responsible for constructing the actual contents of a block, including ordering and validating transactions. Block proposers are responsible for proposing new blocks to be added to the blockchain. 

Responsibilities of Block Proposers and Block Builders

Block builders gather, validate, and assemble transactions into a block body. They review the mempool, validate the transactions by ensuring that they meet requirements like gas limits and nonce, and create a data structure containing the transaction data. Block builders are also responsible for ordering the transactions to optimize block space and gas usage. They then make the block body available to block proposers. 

Block proposers take the block bodies provided by the block builders and create a complete block by adding necessary metadata, such as the block header. The header includes details such as the parent block's hash, timestamp, and other data. They also ensure the validity of the blocks by checking the correctness of the block body provided by the builders. 

How Could Proposer-Builder Separation Impact Maximal Extractable Value (MEV)? 

Maximal Extractable Value (MEV) refers to the profit miners or validators can earn by strategically ordering, including, or excluding transactions in a block. In Ethereum, MEV has gained greater attention as validators extract increasingly more value, especially in DeFi (Decentralized Finance) applications. This can lead to negative consequences, such as frontrunning, increased transaction fees, and unfair advantages for large-scale miners or validators. 

Proposer-builder separation can change the dynamics of MEV extraction in that there could be a redistribution of MEV between the two roles, potentially changing the incentives and rewards associated with each. Since block builders are responsible for transaction ordering and inclusion, they may develop new strategies or promote increased competition that could result in more efficiency and fairer distribution of MEV across the network. 

Proposer-builder separation may also reduce the likelihood of frontrunning and other harmful practices, even though it may not eliminate MEV-related issues entirely. 

Scaling With Proposer-Builder Separation and Danksharding

Danksharding is a term coined by Ethereum co-founder Vitalik Buterin that refers to a specific approach to sharding within the Ethereum 2.0 upgrade. Sharding is a technique to scale the blockchain by splitting it into multiple smaller chains, or "shards," that can process transactions and smart contracts independently. Each shard operates parallel to others, allowing for a significant increase in transaction throughput.

Both Proposer-builder separation and Danksharding are aimed at improving Ethereum's scalability, security, and efficiency. PBS does so by separating the roles of block proposers and block builders, while Danksharding does so by splitting the blockchain into multiple shards that can process transactions in parallel.

Moreover, Proposer-builder separation and Danksharding can be seen as complementary approaches to scaling Ethereum. While Danksharding focuses on increasing the overall capacity of the network by processing transactions across multiple shards, PBS aims to optimize resource utilization and improve the network's performance by dividing the roles of block creation and validation.

What Are the Benefits of Proposer-Builder Separation

Proposer-builder separation could lead to improved efficiency and scalability because dividing the responsibilities allows each role to specialize and optimize its respective tasks. PBS can also increase decentralization by enabling more participants to engage in block creation. 

PBS could lead to more efficiency and fairer distribution of MEV across the network, mitigating negative MEV consequences. Finally, enhanced competition under PBS leads to better resource utilization and overall network performance as builders strive to create more attractive block bodies for proposers. 

What Are the Limitations of Proposer-Builder Separation

Introducing PBS adds an additional layer of complexity to the blockchain network. While PBS redistributes MEV between block builders and proposers, it may not entirely eliminate the negative consequences associated with MEV extraction. PBS may lead to new strategies and dynamics in MEV extraction, and addressing these issues effectively could require further research and development.

The division of labor in PBS may result in a smaller number of specialized block builders and proposers dominating the network, which could come with centralization risks. This may be particularly true if there are significant economies of scale or barriers to entry that prevent smaller players from participating in either role effectively.

Lastly, PBS relies on effective coordination between block builders and proposers, which could introduce latency or other performance bottlenecks. Designing appropriate incentive structures for block builders and proposers can also be a challenge, as it must ensure that both parties are fairly compensated for their efforts. Striking the right balance in these incentives may be difficult, particularly given the potential for changing dynamics in MEV extraction.

Also learn: What Is Ethereum 2.0 And Why Does It Matter?