Crypto community set off a censorship-resistant storm, or will Ethereum fall into a regulatory dilemma?

Ethereum is facing an anti-censorship storm. After the crypto mixing service Tornado Cash was sanctioned by the U.S. Treasury Department last week, the crypto community began to worry that the Ethereum Beacon Chain would destroy the ecology in order to cooperate with the sanctions. Buterin also said that if regulators use this to conduct protocol-level review of Ethereum, he will regard this as an attack on ETH. This week, Ethereum ecosystem developers took to Twitter to discuss the topic of Ethereum merger regulation.

Crypto exchange Coinbase CEO Brian Armstrong said in a tweet Wednesday that the company would rather get out of the ethereum staking business than review the network to comply with sanctions. He prefers not to censor transactions to and from sanctioned addresses after the blockchain transitions to proof-of-stake.

On Twitter, Ethereum developer Lefteris Karapetsas asked Coinbase, Kraken and other centralized exchanges what they would do if the U.S. government asked them to comply with sanctions and block transactions related to blacklisted Ethereum addresses. The issue has become a hot topic in the crypto community following last week’s sanctions against Tornado Cash.

The centralized exchange is one of the largest validators on the Ethereum proof-of-stake (PoS) chain, which is currently in beta mode but will soon become the main network, as the platform’s developers are planning to abandon the current proof-of-work (PoS) chain. PoW) ) consensus mechanism.

Karapetsas tweeted on Sunday: “If regulators required you to conduct censorship at the Ethereum protocol level with your validators, you would: A) comply and censor at the protocol level B) shut down staking services and keep the network intact sex.”

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Three days later, Armstrong replied: “It’s a hypothesis that we hope we don’t really face. But if we did, I think we would choose B. We have to look at the bigger picture. There may be more A good option (C) or legal challenge helps achieve a better outcome.”

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Armstrong also expressed support for Tornado Cash developer Alexey Pertsev , who was arrested in the Netherlands last week . “No developer should be arrested for publishing open source software, even if the software is used by bad actors,” the Coinbase CEO tweeted.

But Armstrong said that whatever he thinks about sanctioning open source technology, one thing is clear: “We will always obey the law.”

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In a proof-of-stake blockchain, validators lock or stake their tokens in smart contracts to guarantee that they act honestly. For correct verification, they will be rewarded with new tokens. If they fail to verify properly, their stake may be “slashed” by the protocol.

Some centralized exchanges that already hold user tokens also offer to stake customers’ ETH for them in larger staking pools to share in the staking rewards. Coinbase will greatly benefit from its staking business after Ethereum moves to PoS, JPMorgan said.

However, recent government efforts to rein in decentralized cryptocurrency projects and impose sanctions, including the arrest of Pertsev by Dutch police, suggest that exchanges may face a tough choice: impose sanctions at the protocol level or forfeit their staking profits.

Eric Wall, chief investment officer at Arcane Assets, believes that the community must force centralized exchanges to fully withdraw from staking before it is too late.

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Wall tweeted: “Make it clear to Coinbase, Kraken, Bitcoin Suisse, etc. that complying with OFAC is not an option. This will result in all of their clients’ stakes being cut and their business ending. If they don’t plan to support Resist censorship and let them reduce staking now. I can’t believe how hollow the Ethereum community’s response to this is.”

Twitter user eric.eth responded, “I agree with Eric. We should let people know that as a community we (stakers) will burn the stakes of any entity that tries to censor a transaction, for whatever reason. Ether. Square PoS simply doesn’t need large staking entities to survive. If they don’t follow the spirit of the entire community, they will get kicked out and lose client funds.”

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Lane Rettig , a former ethereum core developer, tweeted, “You only have one job: censorship resistance. If you can’t do that, then none of this makes any sense and we should all pack up and go home.”

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Crypto lawyer Geoff Costeloe believes that centralized staking entities have no choice but to comply with government censorship orders.

Luke Youngblood , a developer of DeFi protocol Moonwell who worked on Coinbases’ ETH staking product, disputes the claim. He wrote: “One thing you may not know is that all of Coinbase’s retail-facing ethereum validators operate outside of the US (for tax purposes). So not only do they fight censorship to the end, but the US It is also difficult for regulators to review transactions.”

The concern among cryptos is that in the future, centralized entities may end up being forced to censor transactions at the Ethereum network protocol level. Some community users are concerned that Coinbase may cave under regulatory pressure to exclude certain transactions from new ethereum blocks. According to Dune Analytics data, Coinbase will be the third largest Ethereum validator with a market share of over 14.7% of all staked ETH.

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It’s not just the Ethereum merger that may be coming, the censorship-resistant storm is also growing. An ethereum merger or regulatory intervention has opened the door, and a massive battle over regulatory scrutiny has begun. When regulation hits, is it to cater to censorship, or to stick to the spirit of the Ethereum community?

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/crypto-community-set-off-a-censorship-resistant-storm-or-will-ethereum-fall-into-a-regulatory-dilemma/
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