Preventing Frontrunner Bots in Blockchain: Safeguarding Fairness and Integrity | by Rahul Sharma | Coinmonks | May, 2023

What is frontrunning in the context of blockchain?

Frontrunning refers to the act of exploiting knowledge about pending transactions in order to gain an advantage. Frontrunners typically prioritize their own transactions to be included in a block before others, and they do so by paying higher transaction fees or using other strategies to ensure their transactions are processed first.

Frontrunner bots are automated software programs or scripts that are designed to detect and exploit these opportunities for frontrunning. These bots continuously monitor pending transactions on the blockchain and attempt to identify transactions that they can profit from by submitting their own transactions with higher fees or by executing specific trades or actions based on the knowledge of upcoming transactions.

Frontrunner bots are most commonly associated with decentralized finance (DeFi) platforms, where they can be used to manipulate trades, exploit arbitrage opportunities, or take advantage of other time-sensitive actions. Their actions can potentially result in financial gains for the bot operators while causing losses or unfair outcomes for other participants in the blockchain network.

It’s worth noting that frontrunning is considered by many to be an unethical practice, as it takes advantage of privileged information and disrupts the fair and transparent nature of blockchain systems. Efforts are being made to mitigate frontrunning and improve the overall fairness and efficiency of blockchain networks.

How can frontrunner bots be prevented?

// SPDX-License-Identifier: MIT
pragma solidity ^0.8.9;
import "@openzeppelin/contracts/token/ERC20/ERC20.sol";
import "@openzeppelin/contracts/access/Ownable.sol";
contract MyToken is ERC20, Ownable {
mapping(address => uint256) public _buyBlock;
bool checkBot = true;
constructor() ERC20("My Token", "MTK") {
_mint(msg.sender, 1000 * 10 ** 18);
}
modifier isBot(address from, address to) {
if (checkBot) require(_buyBlock[from] != block.number, "Bad bot!");
_;
}
function setCheckBot(bool _status) public onlyOwner {
checkBot = _status;
}
function _beforeTokenTransfer(
address from,
address to,
uint256 amount
) internal override isBot(from, to) {
_buyBlock[to] = block.number;
}
}

The provided code attempts to prevent frontrunning bots by using a modifier called isBot within the _beforeTokenTransfer function. Let’s analyze the code to understand how it works:

1. The contract imports the ERC20 and Ownable contracts from the OpenZeppelin library. It also includes a mapping called _buyBlock to store the block number of each address’s last purchase, and a boolean variable checkBot to control the bot check.
2. The constructor initializes the token’s name, symbol, and initial supply by minting tokens to the contract deployer.
3. The isBot modifier is used to apply the bot check. It verifies whether the from address made a purchase during the current block, and if not, it allows the function to proceed. Otherwise, it reverts the transaction with an error message.
4. The setCheckBot function allows the contract owner to toggle the checkBot flag, enabling or disabling the bot check.
5. The _beforeTokenTransfer function is an internal hook provided by the ERC20 contract. It is called automatically before any token transfer occurs. In this implementation, it updates the _buyBlock mapping for the to address with the current block number.

While this implementation aims to prevent frontrunning bots, it’s important to note that the effectiveness of this approach may vary depending on the specific circumstances and behavior of the bots. Frontrunning can be a complex problem, and entirely preventing it is challenging. Rigorous testing and audits are crucial to ensure the reliability and security of smart contracts. Additionally, considering additional preventive measures and analyzing real-world usage scenarios can help strengthen the defense against frontrunning attacks.

Let’s also explore some other preventive measures that can be implemented to protect against frontrunner bots:

1) Encryption and Privacy Preservation: To prevent frontrunner bots from gaining access to pending transaction data, it is essential to employ strong encryption techniques. Encrypting data at various stages, such as during transmission and storage, helps maintain the confidentiality of transaction details. Additionally, privacy preservation techniques like zero-knowledge proofs or secure multi-party computation can be implemented to further protect sensitive information.

Example: Zcash, a privacy-focused cryptocurrency, utilizes zero-knowledge proofs to shield transaction data, making it difficult for frontrunner bots to gain an unfair advantage.

2) Randomized Transaction Ordering: Implementing a randomized transaction ordering mechanism can significantly hinder frontrunner bots. By introducing an element of randomness to the transaction inclusion process, the predictability for bots is reduced, making it harder for them to manipulate the order of transactions for personal gain. This approach promotes fairness and equal opportunities for all participants.

Example: Ethereum’s EIP-1559 proposal includes a transaction ordering mechanism based on a fee-burning mechanism and a random element. This change is aimed at preventing frontrunning and improving transaction fairness.

3) Fee Market Optimization: Optimizing the fee market can help mitigate frontrunning. One approach is to introduce a more advanced fee auction system that prevents bots from excessively raising the transaction fees to outbid others. This could involve implementing mechanisms that limit fee increments or introduce dynamic fee adjustments to prevent manipulative practices.

Example: The implementation of Ethereum’s EIP-1559 introduces a base fee that dynamically adjusts based on network congestion, reducing the ability of frontrunner bots to manipulate fees for their advantage.

4) Transaction Speed Enhancement: Reducing the block confirmation time or utilizing off-chain solutions can decrease the window of opportunity for frontrunner bots. By accelerating transaction speeds, the time available for bots to detect and exploit pending transactions is significantly shortened, making their strategies less effective.

Example: The Lightning Network, a layer-two scaling solution for Bitcoin, enables faster and cheaper transactions by conducting them off-chain, minimizing the possibility for frontrunner bots to take advantage of pending transactions on the main blockchain.

5) Enhanced Monitoring and Detection: Implementing robust monitoring and detection systems can help identify and flag suspicious or manipulative behavior associated with frontrunner bots. By analyzing transaction patterns, network behavior, and transaction history, algorithms can be developed to identify and prevent frontrunning attempts.

Example: Chainalysis, a blockchain analytics company, offers tools that help detect and prevent illicit activities on blockchain networks, including frontrunning activities. Their software analyzes transaction data and identifies suspicious patterns or abnormal behaviors associated with frontrunner bots.

Conclusion:

Preventing frontrunner bots is crucial to maintain fairness and integrity in blockchain networks. By employing encryption techniques, randomized transaction ordering, optimized fee markets, transaction speed enhancements, and robust monitoring systems, blockchain developers and users can significantly mitigate the impact of frontrunning. These preventive measures contribute to a more transparent and equitable blockchain ecosystem, fostering trust and enabling the technology to reach its full potential.