Robert Steinadler, 2 months ago

OFAC sanctions: More than 51 % of Ethereum’s blocks are censored

MEV boost is a script that allows Ethereum validators to maximize their staking reward by selling block space to an open market of builders. Up to 60 % more revenue is promised when using the technology. Needless to say, more and more validators are using this highly incentivized technology. As always in life, there is a catch to that.

Why is censorship all of a sudden a thing on Ethereum and do we need to worry about the openness of its blockchain?

OFAC is going after Tornado Cash

After several hacks and exploits in the DeFi space, the US Treasury Department had to act and came to the conclusion that North Korean hackers were behind these criminal acts. Therefore, the OFAC sanctioned the Ethereum tumbler Tornado Cash and ever since that day a large part of the industry behind Ethereum is honoring these sanctions.

It started before the Merge with mining pools effectively not accepting transactions from and to Tornado Cash. It seems that this is going to continue, since most MEV boost relays are censoring transactions, too.

According to the website MEV Watch more than 51 % of all blocks today were compliant with the OFAC rules. A little more than 6 % of all blocks were not censored and the rest is not using MEV boost at all. Since the MEV boost creates a very sweet incentive it is to be expected that more validators could join in and start censoring transactions by choosing a compliant relay.

Most US validators have no choice

The largest part of the validators that are compliant is situated in the US. US citizens and companies have legally no other choice than to comply. It is therefore important for them to secure their business without any conflict with law enforcement.

That being said, being censorship-resistant doesn’t mean that Ethereum is censorship-proof. Especially validators outside the US could help the situation by choosing a non-compliant relay.

Critics believe that this development could start a serious disaster and put Ethereum in a bad spot. There is also a discussion about whether slashing should be used to force validators to take a neutral stance and treat all transactions equally. For now, Ethereum is still decentralized and remains open to all of its users.

Regulation is not necessarily bad

Many crypto proponents believe that regulation is generally a good thing, and that mass adoption can only be achieved if the technology fits into legal frameworks. This is supported by the fact that big investment companies and banks are looking forward to funneling more money into crypto once it gets clear and better regulation.

Like it or not, sanctions are part of everyday life and if Ethereum is going to become part of that life for all people around the world, then sooner or later it needs to adapt to certain demands.

The more interesting question is which demands shall be met. Does Ethereum need to follow the demands of all governments equally or only those who uphold certain standards?

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