Cryptocurrency

Ethereum is under attack as U.S. sanctions apply at a protocol level

The hopes of a decentralized, open and free internet are now in jeopardy. This is not hyperbole, FUD, or clickbait. Ethermine, the largest Ethereum mining pool, no longer produces blocks containing Tornado Cash transactions. This is likely due to OFAC sanctions and is an example of protocol-level censorship.

Crypto analyst Takens Theorem has discovered that Ethermine has stopped processing Tornado Cash transactions, presenting the chart below. CryptoSlate has verified on-chain data and in the time frame shown below he has confirmed that Ethermine has not generated any blocks containing Tornado Cash transactions.

It should go back about 10 days. block Generated by Ethermine containing Tornado Cash transactions.block 15306892 was created on August 9th and was mined by Ethermine.in the block 10 ETH transaction Processed through the Tornado Cash router.

After reviewing the latest Tornado Cash Router transactions, we found that they were dominated by Hiveon, P2Pool, 2Miners, and others.

Why is this important?

Why is this important? Recently, the US authorized the use of Tornado Cash through her OFAC, making it illegal for US entities to interact with the protocol.

Following this sanction, the Circle “blacklisted” USDC on the Ethereum network, preventing owners who interacted with Tornado Cash from interacting with smart contracts. This move effectively froze all $USDC that went through Tornado Cash.

Next, DeFi protocols such as Aave, Uniswap and Balancer have introduced APIs from TRM Labs. This disabled the dApps frontend, essentially banning OFAC-sanctioned addresses.

Aave reportedly restored access to an address that was “dusted” with 0.1 ETH in an attempt to highlight one of the major problems hacktivists have in complying with sanctions. Addresses that interacted with Tornado Cash were currently under sanctions from the United States, according to OFAC. So when a hacktivist sent his 0.1 ETH to several influential people in the crypto space, it showed that sanctions could easily be abused.

While it’s definitely good that Aave regained access to the celebrities targeted, the question remains: “What happens to the users targeted in such attacks?”

If I send 0.1 ETH in Tornado Cash because my boss doesn’t like it, will he get kicked out of Aave too? If so, how will Aave prove his claims are valid? Users can fork the protocol or interact via the CLI, but this is beyond the reach of most users.

Ethermine’s choice to stop generating blocks containing Tornado Cash transactions is a step further than any of the above. Choosing which transactions to process goes against the core principles of the Ethereum blockchain. This network should be open source, free, decentralized and inclusive.

Censorship at protocol level

Currently, other miners are still processing transactions, but if other miners follow Ethermine’s lead, Tornado Cash may no longer have miners willing to process transactions.

Vitalik Buterin, after The Merge, was enraged at the idea that validators could comply with OFAC sanctions, declaring that sanctions-complying validators should burn their ETH stake. He agreed that any action that did not involve a Tornado Cash transaction should be seen as “an attack on Ethereum and burn their stock via social consensus.”

When discussing the possibility of proof-of-stake validators ignoring Tornado Cash transactions, Igor Mandrigin, CTO of Web3 infrastructure company Gateway.fm, told CryptoSlate:

“Technically, it’s not impossible to not propose a block in TC and ignore it from the transaction pool…but the fewer US-regulated validators, the better.”

Within a day of the above conversation, we can see a working example of a proof-of-work validator ignoring Tornado cache blocks.

Ethermine is not a US-based company and is therefore not subject to OFAC sanctions. However, miners using Ethermine pools may be located in the United States. If EtherMine mines blocks containing Tornado Cash transactions, it is considered to be interacting with Tornado Cash and may violate sanctions.

Initial community reaction

In response to the news, Gnosis co-founder Martin Koppelmann disagreed with the comment that “it doesn’t matter”.

Paradigm co-founder Matt Huang recently reiterated the importance of the blockchain ecosystem to “stay neutral and resist censorship.”

Harsh Rajat, founder of the Ethereum Push Notification Service, shared similar concerns with CryptoSlate.

“Regulations banning open source technology are like Ford being prosecuted for inventing the automobile. , it’s sad to see people forced to comply with regulations, but even more tragic is how someone took a knee-jerk reaction and bought a law that doesn’t apply to web3 at all.

Regarding the solution, Rajat said:

No entity within the Ethereum ecosystem should be able to decide what is included in a block and what is not included. The news is amazing, but it’s not yet a crisis. Other mining his pool doesn’t look like he’s following Ethermine’s lead, and Ethereum validators such as Coinbase are adamant they won’t censor transactions after The Merge.

But this is a dangerous road. This is not the direction towards a free and fair decentralized internet. It’s a few steps back and could be the road to an even darker future.

The Tornado Cash code itself is not illegal and is completely open source. It does not imprison gun manufacturers when used against innocent people. The government is not responsible if criminals use cash for illegal transactions. By the same argument, the code created by the Tornado Cash team is not responsible for anyone laundering money through the protocol.

Tornado Cash has legitimate uses and is a privacy tool at its core. In my opinion (Akiba), illegal activity could be found, so the authorities should investigate and trace how the money got to Tornado Cash and what it was subsequently used for.

It could be a mere coincidence that Tornado Cash transactions are not included in the Ethermine block.However, given that it produces one third As for the hashrate of the network, it is unlikely.

CryptoSlate reached out to Ethermine for comment, but did not receive a response. A Discord forum moderator told CryptoSlate: I can’t say for sure, but I’ll leave it to the management team. ”

Original research and findings by Oluwapelumi Adejumo.

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