Proof of Encryption Eliminates MEV and Unlocks Private On-Chain Computation → Research

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Briefing

The research addresses the critical challenges of Maximal Extractable Value (MEV) exploitation and the pervasive lack of data privacy inherent in current public blockchain architectures. It introduces the BITE Protocol, which implements Proof of Encryption (PoE) at the native consensus layer, fundamentally altering how transactions are processed. PoE ensures transactions remain threshold-encrypted until block finalization, thereby provably eliminating MEV and enabling full-stack privacy. This innovation establishes a new foundation for truly fair, private, and robust decentralized systems, unlocking previously impossible use cases for institutional finance, AI agents, and sophisticated DeFi strategies.

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Context

Prior to this research, Layer 1 blockchains fundamentally exposed all transaction data in plaintext within public memory pools, creating systemic vulnerabilities. This transparency enabled Maximal Extractable Value (MEV) extraction, where privileged actors profit by reordering or censoring transactions, and it severely limited the ability of decentralized applications to handle sensitive user data, hindering institutional and advanced AI adoption. The prevailing theoretical limitation centered on reconciling blockchain’s transparency with the imperative for transactional fairness and data confidentiality.

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Analysis

The BITE Protocol introduces Proof of Encryption (PoE), a novel consensus-level mechanism. It functions by encrypting transaction data and destination addresses using threshold encryption before they enter the mempool. A supermajority of consensus nodes collectively decrypts the transaction only after it has been irrevocably committed to the blockchain, but prior to its execution by the EVM.

This commit-then-reveal design fundamentally differs from previous approaches by eliminating the visibility window that MEV extractors exploit, making front-running and censorship provably impossible at the protocol level. The protocol further extends to enable private smart contract data, re-encryption for access control, and eventually fully homomorphic encryption for confidential computation.

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Parameters

Core Concept → Proof of Encryption (PoE)
New System/Protocol → BITE Protocol (Blockchain Integrated Threshold Encryption)
Key Authors → SKALE Research Team
Underlying Consensus → SKALE Consensus (Asynchronous Byzantine Agreement)
Primary Benefit → MEV Elimination
Secondary Benefit → Full-Stack Data Privacy
Encryption Method → Threshold Encryption

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Outlook

This foundational work opens significant avenues for future development, particularly in advancing confidential DeFi and secure AI agent operations. The integration of threshold fully homomorphic encryption in later phases will enable complex on-chain banking and advanced computational tasks on encrypted data, transforming blockchain into a privacy-preserving cloud computer. This trajectory could unlock trillions in institutional capital and foster a new generation of decentralized applications that match Web2’s privacy capabilities with Web3’s trustlessness.

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Verdict

The BITE Protocol’s Proof of Encryption fundamentally redefines blockchain’s core properties, establishing a new paradigm for fairness and privacy essential for mainstream and institutional adoption.

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