Questions have been rising over possible censorship of Ethereum transactions.
Censorship of Ethereum transactions in response to sanctions by the U.S. Treasury Department’s Office of Foreign Asset Control (OFAC) is a topic of intense debate in the crypto community. Recent concerns regarding sanctions of Tornado Cash, and a slew of Ethereum addresses associated with it, announced on August 8th by OFAC have reached a fever pitch.
Can Ethereum be Censored?
Questions have been raised over possible Ethereum censorship. Pseudonymous open protocols were supposed to be immune.
Concerns are rising over the prospect of censorship by entities that are domiciled within the U.S. jurisdiction. The OFAC sanctions have kept crypto stakeholders of all stripes closely watching whether Ethereum could be censored post-merge. Statistical data from Dune Analytics reveals that over 66% of ETH Beacon Chain validators could be compelled to comply with the regulation. Would large staking providers like Coinbase and Kraken abide by the sanctions? If so, how would the Ethereum community respond?
Lefteris Karapetsas posed the question to major stakers in a Twitter poll, which Coinbase CEO Brian Armstrong gamely responded to.
Crypto luminary Eric Wall followed it up with an even more provocative poll.
None other than Ethereum co-founder Vitalik Buterin revealed that he voted X in the poll and would consider the censorship as an attack on the blockchain and to burn the stake of staking providers who censored transactions of the addresses on OFAC’s Specially Designated Nationals (SDN) list.
Why Compliance With OFAC Sanctions Will Not Censor Ethereum
Crypto researcher Justin Bons, founder and CIO of Cyber Capital, posted a Twitter thread on AUG. 19, 2022, explaining more about the censorship issue and why it would difficult to pull off.
As Bons explains, OFAC-compliant stakers could ignore blocks containing OFAC-violating transactions. This would be a chain split. If major staking providers like Coinbase and Kraken split the chain in such a way, coins on the uncensored chain would be burnt through social consensus. If the censored chain subsequently failed, the staking providers would liable for the losses. Bons concludes that compliance with the sanctions is unlikely, even with stakers vulnerable to OFAC enforcement actions. The more likely path would be to shut down staking operations.
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