There has been growing concern about whether or not crypto service providers will choose decentralization over censorship in light of the recent Tornado Cash ban and subsequent arrest for the Tornado Cash developer.
This question is becoming more relevant as Ethereum moves from its proof of work (PoW), blockchain, to a consensus-of-stake mining consensus. A user pointed out that 66% of the validators on the Beacon Chain, the Ethereum PoS chain, will be following the United States Department of the Treasury’s Office of Foreign Assets Control regulations.
Start with the current, largest one.
Currently it looks like over 66% of the beacon chain validators will adhere to OFAC regulations, @LidoFinance @coinbase @krakenfx @stakedus @BitcoinSuisseAG pic.twitter.com/qyq23tPnqV
— eylonverseX (@TheEylon).
August 14, 2022
Brain Armstrong, CEO of Coinbase chose to ignore compliance requests and impose protocol level censorship. Armstrong stated:
“It’s an imaginary we hope not to face. We would choose B if we had to. We need to see the larger picture. You may have a better solution (C) or a legal challenge that could lead to a better outcome.
First group of centralized validators to respond to my question said they would prefer to end their staking program rather than allowing on-chain censorship at protocol level in the Ethereum blockchain. https://t.co/pKG8X50hDa
Hiring for @rotkiapp (@LefterisJP)
August 17, 2022
There was increasing speculation about Coinbase, Kraken and other crypto exchanges that are key ETH validaters on the Beacon Chain.
Many thought that central crypto exchanges would choose to impose protocol-level control over individual transactions of banned crypto mixters like Tornado Cash, rather than blocking them.
The U.S. validators, which includes Coinbase, are pushing for protocol-level censorship
They cannot self-help by simply avoiding blocks containing U.S. sanctioned txs. However, they may be severely slashed if they do so.
— _gabrielShapir0 (@lex_node)
August 13, 2022
OFAC sanctions have made all Tornado Cash transactions illegal. This is the current problem. Experts in decentralized finance (DeFi), however, believe that it has complicated matters. The regulators decided to ban the protocol, instead of sanctioning an address or country.
Here is the complete list of Tornado Cash resources which were banned
– Tornado cash @GitHub organisation
TC contributors can access their personal @GitHub account
All $USDC Tornado Cash Contracts @circlepay
– @infura_io RPC
– @AlchemyPlatform RP
– https://t.co/SHvgEjTOMV domain @eth_limo
— Tornado.cash (@TornadoCash)
August 9, 2022
Experts believe that a ban would dissuade many exchange operators and protocols from engaging in Tornado Cash transactions, which could result in unnecessary censorship.