How does Flashbots Work and How to Use it?

Flashbots is an organization that wants to democratize MEV (Maximum Extractable Value) opportunities. In practice, this means that ordinary users who transact on Ethereum have ‘mempool privacy’ and pay a lower fee for their transactions. How does Flashbots work and how can you use it?

Ethereum is much more complex than Bitcoin because of all its possibilities of smart contract transactions. That is why selecting and ordering transactions into blocks has become a science (or art) that only few master. Those who do it well can extract a lot of fees by, for example, front-running trades. This requires a bit more explanation of what MEV is.

Maximal Extractable Value (MEV) is the potential profit that Ethereum validators can scoop up adding blocks to a blockchain. They can maximize the money they make from block creation by reordering transactions within blocks and even insert new ones. It’s a form of legal insider trading. Why insider trading? After all, the mempool (waiting line of transactions) is public, right? Well, theoretically, it is indeed open to anyone. But only few experts have the advanced skill set of how to interpret and benefit from these data. These experts make the profits.

As someone has to pay for these advanced traders’ profits, we can view MEV as a tax on users. The Ethereum community is working hard on a new and more fair system of MEV. Flashbots arose from this ambition. It is by far the biggest player in this new, 'corporate' MEV industry: it has 80% market share.