NY Fed paper: Ethereum’s censorship resistance is ‘tenuous’

[bitmover]

NY Fed paper: Tornado Cash sanctions show Ethereum’s censorship resistance is ‘tenuous’



Two years ago tomorrow, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) sanctioned the Tornado Cash crypto mixer, which is used as a privacy mechanism for both legitimate and illicit purposes. The sanctions were imposed following allegations that it was used to launder $7 billion, including at least $455 million stolen on behalf of North Korea. In the crypto world, these sanctions were a hugely contentious issue. Today the New York Federal Reserve (NY Fed) published a staff paper exploring the impact of the Tornado Cash sanctions. The mixer is still in operation today. A key conclusion in the paper is that Ethereum’s censorship resistance is tenuous because most people complied with the sanctions.

https://www.ledgerinsights.com/ny-fed-paper-tornado-cash-sanctions-show-ethereums-censorship-resistance-is-tenuous/

Looks like the FED is very satisfied with the sanctions over the tornado cash and how censorship friendly ethereum is.

There are many possible conclusions for this. Could this be good for the price, regulations and even products like ETF? probably.
Is this good for the users? Probably not. Censor transactions is bad, and if someone can censor a transaction this is not very different from banks.

I think this shows how Ethereum is different from bitcoin.

Full FED article: https://www.newyorkfed.org/research/staff_reports/sr1112.html

[ABCbits]

The censorship problem actually could be reduced. But it's clear some of ETH owner/community don't care about it by staking their ETH on staking pool which censor TX. https://www.mevwatch.info/ shows 37% block in past month created by pool which censor TX.

[bitmover]

The censorship problem actually could be reduced. But it's clear some of ETH owner/community don't care about it by staking their ETH on staking pool which censor TX. https://www.mevwatch.info/ shows 37% block in past month created by pool which censor TX.

Interesting.  Why do people stake in that pool? Does it offer better payrates ? Or any other particular reason,? Regulations?

[Husires]

If Ethereum is easily censored, POS coins will be preferred by governments to enact legislative regulations related to them.

The censorship problem actually could be reduced. But it's clear some of ETH owner/community don't care about it by staking their ETH on staking pool which censor TX. https://www.mevwatch.info/ shows 37% block in past month created by pool which censor TX.

Does this mean that coins may not be accepted in the next block if my address is added to their black list?

[bitmover]

The censorship problem actually could be reduced. But it's clear some of ETH owner/community don't care about it by staking their ETH on staking pool which censor TX. https://www.mevwatch.info/ shows 37% block in past month created by pool which censor TX.

Does this mean that coins may not be accepted in the next block if my address is added to their black list?

Exactly.

Some pools are censoring transactions that are in the blacklist of sanctioned addresses. What is strange is that stakers are still staking their coins in that pools

[ABCbits]

The censorship problem actually could be reduced. But it's clear some of ETH owner/community don't care about it by staking their ETH on staking pool which censor TX. https://www.mevwatch.info/ shows 37% block in past month created by pool which censor TX.

Interesting.  Why do people stake in that pool? Does it offer better payrates ? Or any other particular reason,? Regulations?

Who knows. But i would expect that most people (who stake their ETH) doesn't even know whether their pool engage in censorship or not. There are other technical details such as MEV relay, validator and others. You might also want to visit https://mevboost.pics/ to get the idea.

The censorship problem actually could be reduced. But it's clear some of ETH owner/community don't care about it by staking their ETH on staking pool which censor TX. https://www.mevwatch.info/ shows 37% block in past month created by pool which censor TX.

Does this mean that coins may not be accepted in the next block if my address is added to their black list?

Yes. Although the criteria for exclusion could be more than list of blacklisted ETH address.

[dkbit98]

I would not trust anything coming from tornado cash now and I generally don't think any mixing on ethereum is good enough, there is not enough volume for that and it's easier to have software compromised.
Additional danger on ethereum chain is that it's trivial for Tether owners to control and freeze USDT tokens, there is no big difference between that and upcoming CBDC.

[yhiaali3]

Some pools are censoring transactions that are in the blacklist of sanctioned addresses. What is strange is that stakers are still staking their coins in that pools

Couldn't such a blacklist be created for Bitcoin mining pools? I mean if a government somehow took control of a large percentage of mining pools by owning them or subjecting them to its terms couldn't it impose such a blacklist of addresses that the government bans?

I ask this because Trump has stated that he wants all remaining Bitcoin to be American.

[bitmover]

Some pools are censoring transactions that are in the blacklist of sanctioned addresses. What is strange is that stakers are still staking their coins in that pools

Couldn't such a blacklist be created for Bitcoin mining pools? I mean if a government somehow took control of a large percentage of mining pools by owning them or subjecting them to its terms couldn't it impose such a blacklist of addresses that the government bans?

I ask this because Trump has stated that he wants all remaining Bitcoin to be American.

Yes it is possible and vitalik is favorable to punish nodes that censor transactions

Ethereum co-founder votes in favor of burning ETH stake of sanction complying Ethereum validators
https://coincodex.com/article/17999/vitalik-unveils-he-is-in-favor-of-punishing-censorship-tolerant-ethereum-validators/

Technically  ot would require an upgrade in the consensus rules so that validatora who censor transactions would lose their stakes.


So, or they do not censor anything or they lose  money. If they can't validate everything,  they shouldn't be validating

[yhiaali3]

Yes it is possible and vitalik is favorable to punish nodes that censor transactions

Thanks for the link and info, it's good to see Vitalik support penalizing nodes that censor transactions.

But my question was basically about Bitcoin, could there be the same blacklist for mining pools that refuse to mine transactions with blacklisted addresses?

[Faisal2202]

Looks like the FED is very satisfied with the sanctions over the tornado cash and how censorship friendly ethereum is.

There are many possible conclusions for this. Could this be good for the price, regulations and even products like ETF? probably.
Is this good for the users? Probably not. Censor transactions is bad, and if someone can censor a transaction this is not very different from banks.

I think this shows how Ethereum is different from bitcoin.

Most of us already know how different Ethereum is from Bitcoin. However, this message from the fed itself is evidence that ETH's censorship mechanism has weaknesses. And speaking of the satisfaction of FEDs they have to be satisfied because they are making defi more regulated and that's the sole conclusion of this report published by them.

That they used the Tornado cash case as proof that the decentralized world needs rules and regulations. Or in other words, they want to centralize the decentralized world. This is not good for all of us. BTW I don't know why the Fed is so concerned about censorship resistance of ETH. I never considered ETH as censor-resistant.

[bitmover]

That they used the Tornado cash case as proof that the decentralized world needs rules and regulations. Or in other words, they want to centralize the decentralized world. This is not good for all of us. BTW I don't know why the Fed is so concerned about censorship resistance of ETH. I never considered ETH as censor-resistant.

Ethereum is supposed to be censorship resistant as that is the concept of a decentralized app  . An app which cannot be stopped once it's running.

Actually, tornado cash was not seized in the backend. It is still mixing eth and only the front end was censored

[dkbit98]

Couldn't such a blacklist be created for Bitcoin mining pools? I mean if a government somehow took control of a large percentage of mining pools by owning them or subjecting them to its terms couldn't it impose such a blacklist of addresses that the government bans?

Sure they can.
I think some mining pools already tried censoring transactions like Marathon pool, but they later removed it after receiving many complains from bitcoin community.
Now they started doing something differently that can result in some kind of future censorship, Mara is now stamping each mined block with Made in USA stamp.

Here is one example:

Code: [Select]

Hf| MARA Pool | Made in USA 🇺🇸 | (v031924)https://mempool.space/block/00000000000000000000150d74a2716704eb115a0f6973780f838340f9e9ae50

[yhiaali3]

Sure they can.
I think some mining pools already tried censoring transactions like Marathon pool, but they later removed it after receiving many complains from bitcoin community.
Now they started doing something differently that can result in some kind of future censorship, Mara is now stamping each mined block with Made in USA stamp.

Here is one example:

Code: [Select]

Hf| MARA Pool | Made in USA 🇺🇸 | (v031924)https://mempool.space/block/00000000000000000000150d74a2716704eb115a0f6973780f838340f9e9ae50

Thank you for the valuable information.
I was honestly surprised by this information, it means that they will stamp every block mined in the US with a "Made in USA" stamp so that the US can consider this block legitimate while the rest may not be legitimate in the eyes of the US government!!!

I think this is consistent with Trump's vision when he stated that he wants to make the remaining Bitcoin completely American.

[Husires]

Or in other words, they want to centralize the decentralized world. This is not good for all of us. BTW I don't know why the Fed is so concerned about censorship resistance of ETH. I never considered ETH as censor-resistant.

If the Tornado cash case was centralized, it would not be a big problem for the government, as they will be monitored until someone makes a mistake that leads to revealing their location and then sending a force to arrest them, but centralized mixers like Tornado cash make it difficult for governments to stop them.
I expect the government to run some versions of Tornado Cash that currently exist to weaken trust in Mixer or any mixing service associated with Ethereum.