Home Ethereum Why the Ethereum community is worried about censorship as the merger nears

Why the Ethereum community is worried about censorship as the merger nears

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Why the Ethereum community is worried about censorship as the merger nears

The Ethereum community, known for its sunny rainbow and unicorn vibe, has been unusually serious lately. Following a recent decision by the US Treasury Department to target a batch of crypto-related open source code, one word keeps coming up in Ethereum circles: censorship.

The concern emerged earlier this month when the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cashan Ethereum-based cryptocurrency “mixer” that allows users to hide transactions, and a series of Ethereum addresses, prohibiting all Americans from interacting with the mixer and addresses.

According to Treasury officials, Tornado Cash has laundered more than $7 billion worth of cryptocurrency since its inception in 2019 and has become a go-to destination for the infamous North Korean hacking group known as the Lazarus Group.

The Tornado Cash announcement marked a “watershed” moment for the crypto world. Although the Treasury has long targeted financial criminals and those who support terrorist activity, it is unusual for the agency to directly sanction a technology – in this case, a blender.

All of this has raised concerns within the Ethereum community about whether the blockchain is holding up to government censorship – a concern that has only increased as Ethereum nears its end. long-awaited “fusion” upgrade next month.

Can Ethereum Avoid Censorship?

Although existing applications on Ethereum can be censored, as we saw with Tornado Cash, whether the Ethereum blockchain itself can be subject to censorship has been the subject of debate, especially with the next Ethereum merger.

It is because the merge will take Ethereum from a proof of work consensus model (PoW) for proof of stake (PoS), and in turn, validators will be responsible for creating new on-chain blocks and verifying transactions, rather than miners. To become a validator, one must deposit 32 Ether, a sum, with a current value of around $50,000, intended to ensure that participants participate in the success of the network.

A single entity, however, can also run multiple validators, as long as it can afford it, and in doing so, arguably gain more control. As a result, some members of the Ethereum community have expressed concern about the emergence of powerful, centralized entities post-merger – entities that could be flexible when it comes to executing government censorship demands.

Those concerned about censorship have raised various hypotheses: Could a validator refuse to confirm an Ethereum blockchain block because it contains Tornado Cash transactions? Would fear of legal repercussions lead them to ignore or reject such blocks?

It’s unclear if this will happen or if the government will target validators, but these issues have been at the center of the debate online, especially as it broadcast on crypto Twitter that “66% of the Beacon chain [or proof of stake chain] validators will adhere to OFAC regulations,” including Coinbase and Kraken.

Vitalik Buterin, creator of Ethereum weighed in on this discussion himself, and signaled his support in cut the stake of all the validators who are censoring the Ethereum protocol at the behest of US regulators.

Even the CEO of Coinbase Brian Armstrong suggested he would rather halt his cryptocurrency exchange’s staking activities than comply with any potential censorship.

Another post-merger concern relates to the “MEV” – maximum extractable value (formerly miner extractable value) – and potential “MEV-Boost” issues, and how these could increase the potential for censorship.

MEV describes the profit a validator can earn by picking or rearranging transactions in blocks, while MEV-Boost is optional software designed for Ethereum proof-of-stake.

MEV-Boost allows validators to outsource block production to maximize their reward. While there are benefits to MEV and MEV-Boost, both can also be used by bad actors in malicious ways. Specifically, some in the Ethereum community are concerned about the censorship of MEV-Boost “relay operators” or entities that connect validators to block builders – the fear is that the existence of these relay operators offers a significant new target for censorship.

The concern is so widespread that it was addressed during the latest Ethereum Core developer meeting.

“If we allow censorship of user transactions on the network, we have fundamentally failed. This is the hill I’m ready to die on,” developer Marius van der Wijden said during the call. “If we start allowing user censorship on Ethereum, this whole thing makes no sense and I will leave the ecosystem.”

However, most Ethereum developers seemed hopeful that potential MEV-related issues, especially censorship, would not be common threats and remained focused on building Ethereum as a censor-free protocol.

While some may take the topic more seriously than others, experts in the cryptocurrency field don’t think censorship fears are overstated, especially if blockchains are more widely used by standards. over time.

“If crypto is going to go mainstream… it will have to exist within a modern regulatory framework. That means adhering to OFAC sanctions, enabling strong anti-money laundering protections, and more. said Matt Hougan, Bitwise CIO. Fortune. “The question vis-à-vis ETH validators, however, is whether this buy-in should occur at the fundamental technology layer, or on the application and user side.”

Hougan drew an analogy involving the internet, asking whether defamation and hate speech should be banned by the internet itself, or handled at the user and application level instead. “History suggests that freedom, innovation and growth are best served when technologies are allowed to be credibly neutral, and we control bad acts by controlling bad actors,” he said. .

And while the merger has yet to happen, we have already seen forms of censorship on Ethereum in several ways.

Ethereum infrastructure companies Infura and Alchemy have blocked access at Tornado Cash. Circle, the company behind the popular USDC stablecoin, froze addresses linked to Tornado Cash. Uniswap, the largest decentralized exchange on Ethereum, has also would have been blocked Addresses linked to Tornado Cash. Even Ethermine, the largest Ethereum miner, treatment stopped Tornado Cash transactions, to be doubled the “first hard evidence of censorship actually happening in block production,” online.

Looking ahead, only time will tell how, or if, censorship resistance is maintained.

Some online are predicting that the decentralized finance (DeFi) space will continue to split in two: one being a “regulated” and compliant version of DeFi, and the other being DeFi “badlands,” like Gabriel Shapiro , general counsel at Delphi Labs, wrote on Twitter. “[M]Most blue chip projects will adopt the former.

For Hougan, “an interesting part of this process is for the Ethereum community to determine through discussion the importance of decentralization as a core value. Different blockchains will decide different answers to this question, and it will be interesting to see which answer the market rewards and punishes.

Until then, the censorship debate on Ethereum is likely to intensify.

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