Rising OFAC Compliance Sparks Censorship Worries on Ethereum Network

Increasing compliance with the OFAC sanctions by Ethereum blockchain operators is leading to heightened concerns about potential censorship among advocates of decentralization and those within the network.

Toni Wahrstätter, an expert in Ethereum research, observed that a majority – five out of the top six block creators on the Ethereum blockchain – are actively restricting certain transactions to align with the guidelines set by the Treasury Department’s Office of Foreign Assets Control (OFAC).

The primary source of these restricted transactions seems to be the decentralized mixer Tornado Cash, said Wahrstätter. This protocol has been singled out by the Treasury Department because of its misuse by malicious entities, notably the Lazarus hacker group from North Korea.

Diving deeper, Wahrstätter identified that the censorship spans across three central entities that ensure the smooth functioning of Ethereum’s network: validators, relays, and block creators.

As the adoption of blockchain technology and cryptocurrencies expands globally, the topic of censorship has moved to the forefront. Advocates of decentralized networks are increasingly wary of centralized powers exerting undue influence over decentralized systems.

Highlighting these concerns, Wahrstätter emphasized the potential pitfalls when too much power is consolidated among a few players within blockchain ecosystems.

“Censorship resistance is key for political neutrality in blockchains. No single entity should control 2/3 of a blockchain’s content. Decentralization is essential; centralization at any layer of the stack may harm the whole ecosystem,” Wahrstätter voiced.

To address the growing concerns around censorship and the perceived centralization on Ethereum’s platform, Wahrstätter outlined two potential remedies.

First, he suggested the introduction of an inclusion list to guide entities in processing OFAC-targeted transactions, also advising the removal of operators who fail to comply. It’s worth noting that this specific inclusion list was crafted by Ethereum’s founder, Vitalik Buterin, alongside developer Mike Neuder, in August 2023.

Wahrstätter’s second recommendation centered on encrypted mempools, which would render it impossible for any group to censor transactions based on their origins or content.

Buterin, who has consistently championed the causes of privacy and decentralization, previously stressed the fundamental importance of censorship resistance for blockchains, as reported by crypto.news.

Moreover, Buterin has also expressed criticism towards the U.S.’s stance on crypto regulations and their impact on networks, including Solana (SOL).