Censorship risk
Just three weeks before the expected date of the Merge, financial regulators at the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) dropped a bomb on the crypto world with the sanctioning of the Ethereum-based Tornado Cash mixer. There remain a lot of unknown implications, but many developers and node operators decided they needed to protect themselves by unilaterally censoring transactions associated with Tornado Cash.
The Merge makes moments like this far more worrisome, for a variety of complex reasons. Proof-of-stake-based settlement is widely expected to concentrate more power in the hands of the biggest Ethereum stakers, including very public entities like Jump Trading.
These entities may, in turn, be more susceptible to pressure from entities like OFAC, which could lead to “base layer censorship,” or systemwide refusal to process transactions associated with entities sanctioned by governments.
This is a worst-case scenario and, hopefully, it won’t happen. But the fact that it’s possible, and would undermine the system neutrality that should be part of any blockchain’s core value proposition, is a real cause for long-term concern and vigilance.
Just three weeks before the expected date of the Merge, financial regulators at the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) dropped a bomb on the crypto world with the sanctioning of the Ethereum-based Tornado Cash mixer. There remain a lot of unknown implications, but many developers and node operators decided they needed to protect themselves by unilaterally censoring transactions associated with Tornado Cash.
The Merge makes moments like this far more worrisome, for a variety of complex reasons. Proof-of-stake-based settlement is widely expected to concentrate more power in the hands of the biggest Ethereum stakers, including very public entities like Jump Trading.
These entities may, in turn, be more susceptible to pressure from entities like OFAC, which could lead to “base layer censorship,” or systemwide refusal to process transactions associated with entities sanctioned by governments.
This is a worst-case scenario and, hopefully, it won’t happen. But the fact that it’s possible, and would undermine the system neutrality that should be part of any blockchain’s core value proposition, is a real cause for long-term concern and vigilance.