Exploring Front-running Attack And It's Effect On The Blockchain Network

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INTRODUCTION

Security in this rapidly evolving world of blockchain technology remains one of the most thing that users and developers are concerned about. The blockchain network is not immune to vulnerabilities despite it's transparent and decentralized nature.

And one of the most deadly attack that has ever broken the security of trading platforms is the attack known as "Front Running Attack"
A front running attack can be said to be done when a block validator exploits his position as a validator to have an illegal advantage on the network by manipulating transactions before they are finalized on the blockchain.
This manipulation often results to a huge financial loss for every participant and it also goes a long way to distort the integrity of the market.

When it comes to the operation of the blockchain network, front running attack can be understood to be the exploitation of the transparency of transaction in the Mempool, a waiting area where transactions are stored before they are being confirmed.
Malicious users who can access the Mempool and observe pending transactions can manipulate the transactions on a way that it ensures their profit, and this is done by inserting their transactions before the confirmation of the original transaction.

UNDERSTANDING FRONT RUNNING ATTACK ON THE BLOCKCHAIN NETWORK

On the blockchain network, a front running attack is known to be a front running in stock markets where trades are executed by the brokers on their own account weigh ahead of customer's orders inorder for them to profit from expected price movements.
On the blockchain network, it is said to occur when a malicious users monitor transactions that are yet to be confirmed, and then search for profitable opportunities and then inserts their own transaction with a little more gas fee to ensure that it is being processed before others, and by doing such, they manipulate market prices and make profit through arbitrage.

In the decentralized exchanges for example where smart contract takes control of trade execution, an attacker might be able to identify a large trade which has impact on the price of a token, and as such, they could quickly submit their own trade, buying the lows in the market and then selling them at a higher market price after the large trade is being processed.
And this often results in an unfair profit for the attacker and also leaves the legitimate user with a bad deal as there have been a change of token price before his trade is executed.

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The foundational cause of a front running attack on the blockchain network is the transparency of mempools alongside other incentive-based system of miners.
Transactions with a higher fees are usually being favoured by the miners and this create a vulnerable environment for users that submits large amount of trades. Additionally, the attacker often has a time window to plan this attack because the blockchain transaction are publicly seen before they are being confirmed.

EFFECTS OF FRONT-RUNNING ON BLOCKCHAIN SECURITY AND INTEGRITY

The security and integrity of the blockchain network is being undermined by front running attacks, particularly those in control of financial transactions.
Such attacks in the defi ecosystem can result to a loss of trust in the decentralized system and also a destabilisation of the market, since the liquidity and token price of Defi space Is highly volatile.
Users who are participants in the platform can only expect fairness from the platform but front-running only favours those who has access to the mempool.

Front running attack, aside the damage it causes to users financially, can also distort market prices. Attackers artificially inflate and deflate token price by reordering or inserting transactions in decentralized exchanges which thus contributes to market inefficiency.
This manipulation of price artificially can create an unpredictable price movements and also harm other traders which can result to a reduced liquidity in the pool and can damage the reputation of the blockchain network involved.

Also, the broader adoption of Defi and Dapps is negatively affected by the constant threat of front running attack, and users tend to lose confidence in the transparency of the blockchain when they realise that their transactions are vulnerable to exploitation. And this perception can cause an hindrance to the growth of Defi ecosystem which is greatly dependent on user's trust and participation.

ECONOMIC CONSEQUENCES OF FRONT RUNNING FOR USERS AND DEVELOPERS

The economic consequence of front running attack can be severe for users, whether it involves suffering from unfavorable market prices due to manipulative trades or payout higher fees for their transactions to be validated. Front running increases the cost needed to participate in decentralized financial market. And the brunt of these attacks are laid on legitimate users as their transactions is being taken advantage of by the front-runners.

On the other hand, developers encounter an uphill battle in developing systems that are resilient to front-running. Smart contract developers are under obligation to design mechanisms to mitigate such attacks, and this can be a complex and resource intensive process.
And the failure of developers to solve this issue can lead to loss of users and a reputational damage of the blockchain.
Protocols such as time-based transactions ordering are being implemented to decrease the likelihood of front running, but these solutions are often accompanied with trade-off, such as a higher transaction cost or a reduced decentralization

The potential benefit of the blockchain technology is being undermine by the existence of front running attack, especially in its promise for financial services to be democratised. If a small group of users consistently make profit at the cost of others in the space, this can result to a concentration of wealth and power, recreating the same issue the blockchain technology was created to solve.

CONCLUSION

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Front running attack brings a huge challenge to the integrity of the blockchain network.
By exploiting fee-based prioritizing of transactions and the transparency of transaction, attackers tend to profit unfairly, thus disrupting market dynamics and causing financial harm to users.

While there are several mitigation strategy, the path in removing a front running complex requires a balance between network efficiency, decentralization and privacy.