Opinion: Ethereum spam transactions linked to algorithmic trading

An architectural quirk of the leading Ethereum client, Geth, has led, over the past six months, to a widespread practice of flooding the network with spam transactions designed to protect traders’ profits. This was stated by Hendrik Hofstadt, co-founder of Certus One, in a comment to CoinDesk.

According to Coin Metrics, since May the average fee in the Ethereum network has risen by 800%. One of the causes has been spam transactions, with financial pyramids and the growing DeFi sector also exerting a material impact on the network.

According to Hofstadt, companies specialising in algorithmic trading deploy a large fleet of bots that monitor transactions in the Ethereum mempool. These bots wait for large trades on DeFi platforms and, after they are executed, quickly place orders to profit from price movements.

But the strategy is known to far too many firms. Some have changed tactics and, to crowd out rivals and protect their orders, began flooding the blockchain with numerous zero-value transactions on zero-value sums.

The rise in spam transactions has been observed since the crypto-market crash in March. Since April 2018, about $6 million has been spent on fees for such operations.

Turns out the numbers are concerning. Due to this Geth feature, ~$2.5m in gas fees was spent by backrunning bots, which is almost 40,000 blocks filled with spam txs.

Their activity exploded in a last few months. Yesterday alone, these bots used close to 10% of all block space. https://t.co/KT2AajILSZ pic.twitter.com/XL2V7JMT2B

— Philippe Castonguay (@PhABCD) July 20, 2020

On July 29, the developers of Geth приняли changes to the transaction-execution algorithm for transactions with identical fees. Previously they were chosen randomly; now they are selected on a first-come, first-served basis. To implement the changes, miners must install the corresponding software. Hofstadt noted that the innovation should benefit the health of the Ethereum network, though miners’ revenues could fall.

Earlier, the daily average transaction fees in the Ethereum network for the week reached a maximum since the summer of 2018.

In July, Ethereum co-founder Vitalik Buterin acknowledged the problem of rising fees, proposing a radical rethink of how miners are rewarded.

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