Is it the end of Ethereum? More than half of blocks can be censored

Ethereum has just hit 51% on a specific metric, which is considered worrying by enthusiasts of decentralization and neutral technologies.

Created to become an open and permissionless platform for decentralized applications, Ethereum now realizes that there are about half of its blocks censoring transactions that the US government has blacklisted.

According to MEV Watch, since The Merge, which took place on September 15, the percentage of blocks censoring transactions has been increasing daily. On October 14, it registered 51% for the first time.

This percentage refers to blocks that follow the US Agency for Foreign Assets Control (OFAC) compliance rules. It is a US Treasury Department financial intelligence that administers and enforces trade and economic sanctions for national security and foreign policy objectives.

As we previously reported and have been following on Cointimes, OFAC has sanctioned the Tornado Cash smart contract, created to improve the privacy level of transactions on the Ethereum network. With that in mind, some versions of the block building software on Ethereum already follow OFAC rules so that US-based validators comply with local regulations.

There are currently seven major versions of this software, called “mev-boost relays“: Flashbots, BloXroute Max Profit, BloXroute Ethical, BloXroute Regulated, BlockNative, Manifold and Eden. Of these, only 3 do not censor according to OFAC lists.

Although this can be considered “over compliance“, as the Treasury Department has never made specific requirements for validators on Ethereum. For now, the directly affected individuals are those who interact with the protocol with their wallets.

And now, is the censorship resistance on Ethereum over?

While the scenario is considered worrisome to most, the answer to this question is no. Not yet. As long as validators are willing to confirm “dirty” or “blacklisted” transactions, whatever they are called, they still rely on the security of the network.

There are, however, several points of concern here: without care for privacy, the user can be harassed for transactions considered illegal under some jurisdiction, and there is, for the time being, no guarantee that the network will remain censorship resistant.

According to the pseudonymous Brazilian programmer Lemure explain“51% of Tornado transaction censoring block production power means a user has to wait ~24 seconds instead of ~12.”.

But Lemur still believe that censorship is an issue to be monitored. According to him, there are solutions being discussed, including the Single Unifying Auction for Value Expression (SOFT), a decentralized block creator that maximizes competitiveness and geographic diversity.

Another solution, discussed at the DevCon Bogotá conference by Bitcoin and Ethereum enthusiast Eric Wall, is the creation of ‘social rules’ for the slashing, the cutting (rejection) of validators that apply censorship.

However, ultimately this issue could end up in (another) fork in the Ethereum network. Big proponents and even Vitalik Buterin, co-founder of Ethereum, supports a UASF (User Activated SoftFork) to defend the censorship network. In case of non-consensus, two networks would emerge, the free ethereum it’s the Ethereum-OFAC.

Is Bitcoin safe from this?

So far yes, but the theoretical answer is also no. On a much smaller scale, Bitcoin’s fungibility has also come under attack in this regard when, last year, the Marathon mining pool signaled that it would only be creating blocks with “clean” transactions.

However, it is important to remember how the negative reactions from the community made the mining company go back. The company’s CEO came to publish a video on Twitter committing to decentralization, inclusion and lack of censorship on the Bitcoin network.

Therefore, Bitcoin is subject to a very similar problem, and protection from censorship must come at both the protocol level and the social level.

“Bitcoin miners can be regulated too, which is why it’s bad to have big mining companies listed on the exchange. I’m just saying…“, tweeted John Carvalho, BTC maximalist and CEO of Synonym.

According to the latest data from the University of Cambridge, the highest concentration of Bitcoin hashrate is found in the US, with 37.8%. Ethereum, in turn, has 48% of nodes (validators or not) in the US, which has even made the Securities and Exchange Commission there, the SEC, assume that Ethereum is under its jurisdiction (which is obviously a absurd).

Currently, 4 mining pools reach more than half of the hashrate distribution, according to data from blockchain.com. This number, while small, is not all that worrisome given the ability of a miner to quickly abandon one pool and direct their computing power to another.

This speed, as Eric Wall pointed out in a debate recent with Justin Bons, is an advantage of Bitcoin’s Proof-of-Work over Ethereum’s Proof-of-Stake in the battle against censorship. In stake validation, there is a liquidity lock period, which would reduce the possibility of rapid migration.

On the other hand, the energy footprint of BTC mining not only tends to restrict mining in places where energy is cheap, but also hampers clandestine operations. As Lemure explained in his article “Which model is more resistant to censorship, PoW or PoS?”, mining can leave wealthy activists at greater risk exposure.

But what is your opinion on this matter? Leave a comment below or join the Cointimes community on Discord to talk to other enthusiasts about the issue.