Right now, the hope for a free, decentralized, open internet is at risk. This isn’t hyperbole, FUD or clickbait. Ethermine, the biggest Ethereum mining pool, has stopped producing blocks that contain Tornado Cash transactions. This is most likely due to OFAC sanctions. It is also an example of protocol-level censorship.
Takens Theorem, a crypto analyst, found that Ethermine stopped processing Tornado cash transactions. He presented the chart below. CryptoSlate examined on-chain data and found that Ethermine hadn’t produced a block that contained a Tornado cash transaction within the timeframe below.
These networks can be simpler and more efficient if censorship resistance doesn’t seem to be an objective. https://t.co/PbhFKl4Z74
— Matthew Green (@matthew_d_green), August 19, 2022
To find an Ethermine block that contains a Tornado Cash transaction, we must go back approximately ten days. Ethermine created block 15306892 on August 9th. The Tornado Cash router processed a 10ETH transaction on the block.
Review of Tornado Cash Router transactions from the last few days revealed that they were dominated by Hiveon and P2Pool.
What is the point?
This is why it matters. Recenty, the U.S. sanctioned Tornado Cash’s use via OFAC. This made it illegal for any U.S. agency to interact with the protocol.
Circle was “blacklisted” USDC by Ethereum to prevent any holders from interacting with Tornado Cash. All $USDC that had been transferred through Tornado Cash was effectively frozen.
Next, DeFi protocols like Aave and Uniswap introduced an API from TRM Labs. This disabled the front end their dApps. It effectively banned addresses sanctioned under OFAC.
Aave apparently restored access to addresses that were “dusted” by a hacktivist with 0.1 Ethereum in an attempt to highlight the crucial issues associated with complying with the sanctions. OFAC stated that any address that interacted Tornado Cash was now subject to U.S. sanctions. The hacktivist sent 0.1 ETH and other crypto-related information to several people who were influential. This clearly demonstrated that it was possible to exploit the U.S. sanctions.
Although it is positive that Aave has allowed access to the high-profile victims to resume, there are still questions about what will happen to those users who were affected by this attack in the future.
If I don’t like my boss so I send him Tornado Cash 0.1ETH, will he now also be banned from Aave How will Aave verify that the claim is valid? However, banned users are still able to fork the protocol and interact via CLI. This is not possible for most users.
Ethermine’s decision to stop producing blocks containing Tornado Cash transactions was a significant step. The core principles of Ethereum blockchain prohibit the selection of transactions that are processed. The network should be free, open-source, decentralized, inclusive, and free from censorship.
Other miners still process the transactions, but if Ethermine and others follow his lead, Tornado Cash may be able to operate without any miners.
Vitalik Buterin was so upset by the idea that validators might comply with OFAC sanctions following The Merge, he declared all validators should have their ETH staked burnt. He also agreed that actions that don’t include Tornado Cash transactions should not be considered an attack on Ethereum. Instead, he suggested that they burn their stakes via social consensus.
CryptoSlate was able to speak with Igor Mandrigin (CTO) of Gateway.fm about the possibility that proof-of-stake validators could ignore Tornado Cash transactions.
Technically, it is possible to propose blocks with TC and ignore from the transaction pool… however, the US regulations make it more difficult.
After just a day, we can now see an actual-world example where proof-of-work validators ignore Tornado Cash blocks.
Ethermine is not an American-based company, and does not fall within the scope of the OFAC sanctions. Ethermine pool miners could still be located in the U.S. Ethermine could interact with Tornado Cash if it mines blocks that contain a Tornado Cash transaction.
Initial reaction of the community
Martin Koppelmann (Co-Founder of Gnosis) reacted to the news with a comment suggesting that “it doesn’t matter.”
I disagree. It matters. It makes it normal and puts pressure on others. It is much easier to ignore the other in a world with >90% doing it.
Matt Huang, co-founder of Paradigm, has recently reiterated the need for the blockchain ecosystem to remain neutral and resist censorship.
Blockchain networks such as Bitcoin and Ethereum can be described as global infrastructure systems similar to the Internet, telephone networks, and so on.
It is crucial that they are neutral and resist censorship at base layer.
Legal precedent is just as important as social consensus. Both must be fought for.
— Matt Huang (@matthuang) August 19, 2022
CryptoSlate was informed by Harsh Rajat (founder of Ethereum Push Notification Service), that he had similar concerns.
“Regulations that ban open source technology are similar to charging Ford for creating cars. It is sad to see projects that are successful being forced to conform to regulations either because they fear getting targeted or because the regulations have been written in such a manner. Even more tragic is how someone bought laws that can’t be used on the web and did a knee-jerk reaction. ”
Rajat said that a solution was needed to the problem. He stated that we must stop bad actors, but not inventions that can help us move forward.
The Ethereum ecosystem is free to choose what blocks are included and excluded. Although the news is alarming, it is not yet a crisis. Ethermine is the only mining pool that appears to be following Ethermine’s example, and Ethereum validators like Coinbase have stated categorically they won’t censor transactions after The Merge.
This is not the right path to take. This is not the way to a fair and free internet. It is a step backwards and could lead to a darker future.
The Tornado Cash code is completely open-sourced and does not do anything illegal. Gun manufacturers are not held in prison if they are being used against innocent persons. If a criminal uses money for illegal transactions, the government is not responsible. The code written by Tornado Cash is not responsible for money launderers who use the protocol.
Tornado Cash is legitimately used and can be used as a privacy tool. My opinion (Akiba) is that the authorities should investigate how Tornado Cash was obtained and what it was used for. This is where illegal activity can be found.
It is possible that this is just a coincidence that there have not been any Tornado Cash transactions in Ethermine blocks. It is however unlikely, as it only produces about one-third the network’s hashrate.
CryptoSlate reached out Ethermine for comment, but has not received a response. CryptoSlate was informed by a Discord moderator that Ethermine/BitFly registered as a GmbH, and therefore they are subject to Austrian laws. There is also the possibility that this could be a compliance move. However, I couldn’t say for sure and will leave that to the admin team.”
Oluwapelumi Adejumo conducted original research and found out the truth.
U.S. sanctions on Ethereum are being applied at the protocol level CryptoSlate.