The Ethereum (ETH) community is working on solutions on how best to address the threat of centralized control of protocol-level transactions, following the recent United States government sanctions on addresses associated with Tornado Cash.
Community proposals
Over the last week members of the Ethereum community have proposed social truncation (i.e. cutting off part of the reward for validators) or even a user-activated soft fork (UASF) as responses to the possibility of centralized control of transactions on Ethereum, with some calling them a “trap” that will do more harm than good and others that it is necessary to find credible solutions to resist centralized control on Ethereum.
The heated debate arose after Ethereum miner, Ethermine, chose not to process transactions from the US “cut” Ethereum-based privacy tool, Tornado Cash, a development that has prompted members of the Ethereum community to worry about what would happen if other central validators do the same.
The effectiveness of the social cut
The Ethereum community also discusses the effectiveness of social truncation to combat centralized control on the Ethereum network, as this strategy could lead to chain splitting, with some validators processing transactions on the chain without control and others validating only the chain that is compatible with the OFAC.
The social cut is the process by which validators are deprived of a percentage of their share if they do not validate incoming transactions correctly or otherwise act dishonestly.
The problem that can arise
Centralized control by regulators may cause a significant issue for Ethereum if those regulators require major centralized staking services, such as Coinbase and other major centralized staking sources, which together own more than 50% of the ETH staked on the Beacon Chain, to only validate OFAC-compliant transactions.
Cyber Capital founder Justin Bons argues that revenue cuts are a trap that is a greater risk than OFAC regulation and will not be a viable solution to address centralized control at the protocol level.
Specifically, Bons said that social cuts could “deprive innocent users of their deposits,” which would “violate their property rights.”
Furthermore, Bons pointed out that if too many validators comply with Ethereum’s law enforcement, then they will lead the chain to break as they will ignore or not validate blocks containing TX that violate OFAC.
Resistance to centralized control
Geth developer Marius Van Der Wijgen shared a similar sentiment stating that resisting centralized control of the Ethereum network should be the community’s highest priority:
“If we allow centralized control of user transactions on the network, then we have essentially failed. This is the hill on which I am willing to die. If we start allowing users to be censored, then this whole thing won’t make sense and I’ll leave the ecosystem. I think resistance to centralized control is the highest goal of Ethereum and the blockchain space in general, so if we compromise on that, we don’t have much else to do, in my opinion,” he added.
