Introduction

As of late (well since ‘The Merge’) there is a mounting hoopla surrounding whether or not Ethereum’s transformation to a PoS consensus protocol makes it susceptible to being a 100% censored blockchain. As I sit here this morning sipping my coffee, let me share with you my findings on this interesting and current topic.

Clearly associating the blockchain with censorship is shunned as censorship runs counter to one of the blockchain’s basic tenets - unfettered economic freedom. That said, is the fact that Ethereum Nodes are being censored by MEV Bots disconcerting - Yes - however the panic present associated with this issue is unwarranted. But before that, let’s start by looking at current media reporting on the subject that is fueling the panic.

Ethereum and Censorship as Currently Portrayed by the Crypto Media

For a recently published article on this issue we need only to look back one day. Yesterday, Arijit Sarkar published an article to Cointelegraph entitled Ethereum inches even closer to total censorship due to OFAC compliance. And lo and behold, the very first sentence sets the stage to exacerbate the ethereum censorship issue, to wit:

The minting of OFAC-compliant Ethereum blocks on a daily basis has grown to 73%, adding to the community’s growing censorship concerns.

[Sarkar, A. Ethereum inches even closer to total censorship due to OFAC compliance. (Accessed November 6, 2022).

Continuing on, Sarkar reports that within the past 24 hours of the posting of his article, OFAC compliance was being enforced by over 73% of the blocks of ethereum being minted. The 73% OFAC compliance rate recorded on November 3, 2022 was confirmed by data supplied by mevWatch:

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So what the hell is this OFAC compliance stuff being bantered about? First let’s go directly to the source to answer the base question: what is ‘OFAC’? According to the US Department of the Treasury:

The Office of Foreign Assets Control (“OFAC”) of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United​ States.

[Department of the Treasury. Office of Foreign Assets Control - Sanctions Programs and Information. (Accessed November 6, 2022)].

It should be remembered that OFAC has sanctioned Crypto Mixer Tornado Cash as well as multiple other ethereum addresses. Therefore any block produced by an OFAC compliant MEV- Boost relay is subject to censorship by the blockage of any worldwide Tornado Cash (or subjected ethereum address) from inclusion of a block. [See, e.g. [Pereira, A.P. 51% of Ethereum blocks are now compliant with OFAC standards, raising censorship concerns. (Accessed November 6, 2022) and Carreras, T. 51% of Ethereum Blocks Can Now Be Censored. It’s Time for Flashbots to Shut Down. (Accessed November 6, 2022)].

Hell, even yours truly wrote an article on this topic. [Nagoda, K. Uh-oh - 51% of Ethereum Blocks are now OFAC Compliant - Can you say Censorship?. (Accessed November 6, 2022)]. I concluded that article with the following quotation:

Ethereum doesn’t seem to show any signs of censorship resistance for now, and it seems this issue will continue to gain momentum as more blocks adhere to censoring Tornado Cash transactions [Nijkerk, M. Censored Ethereum Blocks Hit the 51% Threshold Over the Past 24 Hours. (Accessed October 15, 2022)]. (citation added)

[Nagoda, supra]

Well, here we are, just under a month later, and still dealing with panicked articles concerning ethereum’s censorship. While I believe this publishing frenzy will continue, lately I’ve been conducting a little research into this topic and honestly, any minimal fears I possessed prior thereto have been assuaged. Now you should be asking: hey kevinnag58, what’s this panacea you found on this issue? Read on my friends.

With Reality Intervening, While Possible, Nonetheless Ethereum as a Blockchain is a Longshot to Become 100% Censored

Reddit contributor, u/domotheus, posted:

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According to domotheus’ post, there really is no censorship at all, only delay in processing the transaction.

It also appears that domotheus’ position has support. In another Reddit post, u/nelsonmckey noted:

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The founder and CIO of Cyber Capital, Justin Bons, back on August 19, 2022 posted a Twitter thread explaining why full censorship of either Bitcoin or Ethereum as a result of the OFAC sanctions would be difficult to pull off at best. [See, e.g. Mbaki, S. Could OFAC Sanctions Lead to Censorship on Ethereum?. (Accessed November 6, 2022)].

The crux of his argument goes something like this. That by simply not including OFAC violating transactions in a block by a validator does nothing to achieve active censorship in the system. Why? Well as there are many validators/miners in the system, all it would take is for one of these others to include the transaction in a subsequent block for it to enter the canonical chain. Given this, even a very small minority of the validators/miners may take action counter to the censored actions to defeat the censorship. In fact, Bons submits that easily less than 1% of the validators/miners can prevent system censorship.

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Bons goes on to argue that if the censors go on to ignore blocks containing sanction violative transactions would create a situation tantamount to a splitting of the chain (requiring a high degree of coordination between the economic actors to have a chance of success). However, he notes, rather than setting a fork date for a split, parties being coerced into this action would either cease operation or move jurisdiction. Ethereum’s slashing mechanism makes a chain split highly risky. If the chain split, validators on the non-censored side would be slashed, and those on the censored side, should the censored side fail, would be legally liable for the complete loss of their client’s funds.

In light of these technical argument there does exist a simple way of finding a solution to this censorship problem. If system users want to send a transaction that would otherwise be OFAC censored, merely send it with a higher tip. It all boils down to money - once the MEV economically nets less than not running it, the validators will opt to stop using the MEV chasing the higher earning by processing the sanctioned transaction. [See, e.g. u/UnrulySasquatch1. Reddit Post. (Accessed November 6, 2022)].

Final Thoughts

So all you naysayers, breathe a sigh of relief. Ethereum will remain censorship resistant for the simple reason money talks.

And with three cups of coffee down me, I leave you this to ponder. Enjoy your Sunday all.