Blockchain: The Dark Forest

-Reflections Sparked by the Poly Network Attack, First published on Medium on Aug 11, 2021

Blockchain technology can aptly be described as a dark forest.

This concept isn’t entirely new; I first came across it in a Paradigm blog post titled "Ethereum is a Dark Forest." It inspired me to dive deep into everything related to Miner Extractable Value (MEV). I vividly recall the day I finished those readings: a gray, thunderous afternoon. Caught without an umbrella, I walked home from the cafe in the pouring rain, my mind racing with thoughts. Creating any system of order comes with its costs—taxes aren’t eliminated, they merely shift.

Indeed, the world at large is a dark forest.

This holds true for both our physical reality and the realms of blockchain and the cosmic universe depicted in the "Three-Body Problem."

The singularity that triggered the Big Bang marked the beginning of evolutionary processes, with the universe's narrative sculpted through the constant push and pull between increasing and decreasing entropy. Countless lives and civilizations emerge and evolve within this framework, only to eventually fade and perish.

Why must this environment be a dark forest? Could the world not instead be an idyllic, pastoral scene, free from malice?

Theoretically speaking, this isn’t accurate.

There are no absolutes of good or evil, black or white. Even the most idyllic eras had their sins. It's simply that each observer chooses where to focus their attention.

The term "dark forest" originates from Liu Cixin’s novel of the same name, suggesting that any exposure equates to vulnerability. In this context, I extend its meaning: blockchain is a realm of infinite competition, where every potential arbitrage opportunity is rapidly exploited.

Consider MEV as an example. If a transaction exposes a profitable bug, all blockchain participants (including miners and automated scripts) can replicate this transaction, securing benefits through elevated transaction fees or other means of inducement. The outcome is uncertain—who will profit from this bug is not clear—but assuredly, someone will. This makes targeting such bugs effectively a death sentence. MEV is a straightforward, comprehensible example, but in truth, the whole blockchain domain exhibits an extreme level of competition typically associated with a "dark forest." All infrastructure and algorithms are public and transparent, allowing unhindered access by anyone poised to profit, thus ensuring that smart individuals or algorithms will take action. The anonymity of those lying in wait adds an element of unpredictability; a minor mistake could lead to catastrophic outcomes. There is no sympathy for the weak; no allowances for error. Only the survival of the fittest prevails, and mere goodwill is neither praised nor celebrated. Humanistic ideals of love and peace lose their charm and influence in such a stark reality. This bare, unembellished competitive environment, after several cycles of civilization, reveals itself in a brutal and unprecedented form: indeed, you are living in a harsh, dark forest!

The essence of this dark forest was thoroughly demonstrated during the attack on August 10th, when a hacker stole $611 million from Poly Network. Although centralized systems like Tether could freeze the stolen assets, other blockchains were helpless.

The incident drew attention from all quarters: insiders, outsiders, those in the know, and the uninformed. Some criticized the project team, others pondered the implications for decentralized finance (DeFi), and yet others questioned the very foundation of blockchain technology. Amid the chaos of rapid message exchanges and ever-updating news feeds, I sought clarity.

What could be the best possible outcome now?

Might the hacker return all assets voluntarily? Or perhaps we could identify the hacker and bring them to legal justice?

And what about the worst-case scenario?

What if the hacker retains the assets, causing substantial losses for both users and project teams?

Yet even this scenario isn’t grim enough.

The real concern is growing skepticism towards DeFi, blockchain, and the principle of decentralization.

Blockchain touts itself as secure and reliable. However, the current scenario reveals that if there are flaws in a project's code, blockchain offers no real security.

Everyone's initial reaction, including the project teams, tends toward centralization—freezing accounts, halting transactions, seeking legal recourse.

I find this ironic and somewhat humorous.

Isn’t the ethos of blockchain centered around decentralization? Isn’t this supposed to be the foundation of blockchain infrastructure? Yet, while reaping the benefits of decentralization, there’s an underlying desire for protection from centralization—hardly a fair trade.

The cryptocurrency realm remains largely unregulated, not obliged to pay taxes, and offers significant anonymity and freedom. It is a world governed by logic, expressed through numbers and code. Blockchain has been elegantly packaged as a prime investment and the next revolutionary technology, yet few can peer beneath its shiny exterior to grasp its true nature. Just as in the early days of the internet, when the focus was primarily on connectivity, overlooking the potential for tech giants to eventually monopolize and engage in harmful practices.

In my studies on MEV, I wrote:

“The inherent nature of blockchain’s dark forest means those unable to capitalize on MEV face an 'invisible tax burden': longer waits to be included in a block, susceptibility to sandwich attacks, and higher transaction fees. Even altering how transaction fees are collected (like charging a fixed amount) won’t suffice. As long as the profits from MEV are high, miners might still accept bribes outside the market norms, or simply claim the MEV for themselves.”

In blockchain transactions, the overt tax is the transaction fee; covertly, it's the exploitation by powerful algorithms, miners, and hackers against ordinary users.

Blockchain is no idyllic paradise; it's a brutal dark forest. Here, order is more volatile than in centralized systems because there is no absolute authority. Order is established through relentless competition and iteration, with the exploitation of the weak by the strong being a natural law.

As the dark forest novel suggests, humanity is like a naive child who lights a fire, idealizing everything around as kind and beautiful, and warmly inviting others to join. Unbeknownst to them, deep within the forest, countless hunters take aim and fire, their hearts unmoved by the facade.