- The recent crackdown on Tornado Cash followed by Circle’s actions has forced the community to think about whether ETH validators and stakers would censor the network on regulatory demand.
- Exchanges and platforms staking ETH have been asked to clear their position of which Vitalik Buterin said he won’t tolerate censorship.
Ethereum co-founder Vitalik Buterin has made it clear that he would burn the stake of all ETH validators in case they support the censorship of the Ethereum blockchain network. The latest decision comes in the wake of strong regulatory actions in the crypto space.
Amid the recent onslaught and regulatory action investors in the crypto space have been worried enough about censorship actions. It all started last week when the U.S. Treasury decided to completely ban crypto mixer Tornado Cash while citing it as a tool of money laundering by hostile countries such as North Korea.
Immediately, USDC stablecoin issuer Circle started blocking addresses associated with Tornado Cash. This decision came based on the instructions of the U.S. Office of Foreign Assets Control (OFAC). The decision by Circle has somewhat backfired as people started moving their money from USDC to USDT stablecoins.
What’s up with the Ethereum community?
A bigger challenge ahead of the Ethereum community is what would they do in case the regulators’ sensor the Ethereum network. As we know, Ethereum is in the midst of transitioning its Proof-of-Work (PoW) network to a more sustainable, efficient, and fast Proof-of-Stake (PoS) network.
Citing data from Dune Analytics, crypto market analyst eylonverse X said that the 2/3rd of the Beacon validators have said that they would follow the OFAC rules in the case of censorship of the Ethereum blockchain.
Start with the big, current 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
— eylonverse X 🏴 (@TheEylon) August 14, 2022
He further noted that “If 66% of the validators will not sign specific blocks. block builders / relayers who propose blocks with sanctioned tx’s are less likely to be included, meaning these block builders will lose money, making the inclusion of such TX’s economically enviable. There is a case to be made here that the #ethereum ecosystem has not reached sufficient social decentralization, and we are charting in very dangerous, nation state capture territory”.
Here’s what Vitalik Buterin had to say
The Ethereum community has been talking a bit about the ongoing concerns with regulatory actions. This is even more important at a time when Etheruem is soon to transition to a PoS model.
Some of the popular market players have also reached out to validators and stakes like Kraken, Coinbase, and Lido Finance, asking them what would be their take if the regulators ask them to censor ETH staking. However, none of them have come up with a clear explanation. Crypto blogger Eric Wall conducted a poll in a question to the Etheruem community.
Question for the Ethereum community. If a majority of stake chooses A in this poll, will you:
X) Consider the censorship an attack on Ethereum and burn their stake via social consensus
Y) Tolerate the censorship https://t.co/Mf48co37jK— Eric Wall X 🏴 (@ercwl) August 15, 2022
Responding to this, Vitalik Buterin said that he would choose option X. Thus, he wouldn’t tolerate the censorship but rather consider it an attack and burn the validators stake through mutual consensus.
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