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Chainlink Labs’ Chief Scientist Ari Juels Explains How Fair Sequencing Boosts Trustworthiness On-Chain

The Chainlink 2.0 whitepaper architects the future of hybrid smart contracts and outlines a long-term, 136-page vision for Chainlink’s next technological achievements. In order to distill some of the whitepaper’s complex topics, authors Sergey Nazarov, Ari Juels, Andrew Miller and Lorenz Breidenback took part in a research panel discussion about what they believe to be the most exciting technologies with the biggest short-term and long-term impacts. Nearly 3,000 viewers watched the panel’s live premiere.

The discussion centered on understanding the role of hybrid smart contracts presently and in the future. Because hybrid smart contracts combine agreements codified on-chain with equally reliable, tamper-proof data proving off-chain events (such as changes in market prices), they form the backbone of the rapidly growing decentralized finance (DeFi) industry. As the use cases for hybrid smart contracts multiply, Chainlink Labs’ Chief Scientist Ari Juels said it’s equally important to recognize what can’t be accomplished without them.

“You can’t really do much more than issue tokens, and even the token issuance process becomes fraught if you don’t have secure random number generation in some cases, especially with NFTs.”

Reliable, tamper-proof data proving off-chain events allows smart contracts to interact with off-chain systems and produce meaningful, real-world outcomes. In this model, it is typically understood that on-chain systems are more trustworthy than off-chain systems. But Chainlink 2.0’s innovative Fair Sequencing Service (FSS) has the potential to change that.

“FSS is interesting in that it’s meant to be an example of how off-chain systems can improve the trustworthiness of on-chain systems,” Juels said. This is because, although blockchains are engineered to be inherently decentralized systems, a limitation of standard blockchain design is that they actually have a temporary form of centralization. 

Juels explained, “A miner gets complete control over which transactions go in a block and how they’re ordered. Normally a miner orders transactions by descending gas price, but it’s not actually required to do this. It can insert or delete transactions at will or reorder them. And order, as it turns out, matters tremendously.”

Frontrunning allows miners to profit from transactions by “sandwiching” them with other transactions. Juels said this phenomenon isn’t just hypothetical and it’s an example of the kind of practices FSS is designed to address. 

“The idea is that, instead of centralizing transaction ordering in the hands of a miner, let’s decentralize it within an oracle network.”

He used a simple, everyday analogy to explain how FSS approximates first-come, first-serve service: the ticket system we’ve all used to order lunch at a deli. FSS or fair ordering would treat submitting a transaction on a blockchain like taking a ticket that determines your place in line, where no one who takes a ticket after you can cut in front. 

Juels said he hopes FSS as a tool will make a big difference in lowering transaction prices by eliminating frontrunning and ultimately achieving true decentralization of on-chain systems. As such, FSS isn’t a luxury; it’s an essential. Said Juels, “If we’re going to build a better financial system, one without the shenanigans of Wall Street, we need to achieve fair ordering.”

For more information on Chainlink 2.0, read the announcement blog and whitepaper and visit the Whitepaper Research Summary on the Smart Contract Research Forum.

Watch the full research panel discussion below.

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