The largest Ethereum miner, Ethermine, has stopped processing sanctioned transactions. Ethermine no longer processes blocks containing Tornado Cash transactions, which creates protocol-level censorship.
Ethereum miner Ethermine has stopped trading Tornado Cash
The hope of a decentralized, open, free internet is now at stake. This is not exaggeration, FUD or clickbait. Ethermine, the largest Ethereum mining pool, no longer produces blocks containing Tornado Cash (TC) transactions. This is probably due to OFAC sanctions. This is an example of protocol-level censorship.
Crypto analyst Takens Theorem discovered that Ethermine has stopped processing Tornado Cash transactions. In this context, he presented the graphic below. On-chain data confirms that Ethermine did not generate a block containing a Tornado Cash transaction during the timeframe shown below.
If censorship resistance isn’t a goal, these networks can be a *whole lot* simpler and more efficient. https://t.co/PbhFKl4Z74
— Matthew Green (@matthew_d_green) August 19, 2022
We need to go back about ten days to find a block produced by Ethermine that contains a Tornado Cash transaction. Block 15306892 was created on August 9 and mined by Ethermine. The block had 10 ETH transactions processed through the Tornado Cash router. A review of the latest Tornado Cash Router transactions showed that Hiveon, P2Pool, 2Miners and others dominated.
Why is this important?
As you follow on Kriptokoin.com, recently the US has approved the use of Tornado Cash through OFAC, making it illegal for any US entity to interact with the protocol. Following this sanction, Circle blacklisted USDC on the Ethereum network. Thus, any holder interacting with Tornado Cash would no longer be able to interact with the smart contract. This move actually froze all USDC going through Tornado Cash.
Later, DeFi protocols like Aave, Uniswap, Balancer, and others introduced an API from TRM Labs that disables the front-end of their dApps, essentially banning OFAC-approved addresses. Aave has reportedly restored access to addresses that were ‘dusted’ with 0.1 ETH by a hacker trying to highlight one of the critical issues with complying with sanctions. According to OFAC, any address that interacted with Tornado Cash was now under US sanctions. It’s undeniably good that Aave is bringing back access to these high-profile people targeted. However, the question remains: What will happen to users who are the target of such an attack in the future?
If I don’t like my boss so I send him 0.1 ETH via Tornado Cash, will he be banned from Aave now too? If so, how will Aave prove that his claim is legitimate? It’s still possible for banned users to fork the protocol. Or there are possibilities to interact via the CLI. But that’s out of the reach of most users.
Ethermine’s decision to cease producing blocks containing Tornado Cash transactions is a step beyond any of the above. Choosing which transactions to process goes against the fundamental principles of the Ethereum Blockchain. Because the network had to be open source, free, decentralized and inclusive.
Protocol level censorship
If other miners continue to process transactions at the moment, while others follow Ethermine’s lead, there is a possible world where Tornado Cash is no longer willing to process miners’ transactions.
Vitalik Buterin is furious at the thought that after Merge, validators could comply with OFAC sanctions. This is why he declared that any validator complying with the sanctions should burn their ETH. He agreed that actions not involving Tornado Cash transactions should be seen as ‘an attack on Ethereum and a burning of its shares through social consensus’. Discussing the possibility of PoS validators ignoring Tornado Cash transactions, Igor Mandrigin, CTO of Web3 infrastructure company Gateway.fm, says:
It’s not technically impossible not to propose blocks with TC, to ignore them from the transaction pool. However, the fewer verifiers under US regulations, the better.
In one day of the above talk, we see a real-world example of a PoW validator ignoring Tornado Cash blocks. Ethermine is not a US based company. Therefore, it does not fall under the jurisdiction of OFAC sanctions. However, it is possible for miners using the Ethermine pool to be in the USA.
Initial community reaction to Ethereum miner
In response to the news, Martin Koppelmann, Co-Founder of Gnosis, disagreed with a comment, saying “it doesn’t matter”.
I disagree. It does matter. It normalizes that behavior and it thus puts pressure on others to do it as well. In a world where >90% would do it, the step is much smaller to then start ignoring the other <10% blocks.
So – IT MATTERS!
— Martin Köppelmann (@koeppelmann) August 20, 2022
Paradigm Co-Founder Matt Huang recently reiterated the importance of the Blockchain ecosystem to “remain neutral and resist censorship”.
Crypto networks like Bitcoin and Ethereum are global infrastructure systems akin to telephone networks, the Internet, etc.
It is vital that they remain neutral + resist censorship at the base layer.
Social consensus is as important as legal precedent. We must fight for both.
— Matt Huang (@matthuang) August 19, 2022
Harsh Rajat, Founder of Ethereum Push Notification Service, shares similar concerns and says:
Regulations banning open source technology are akin to suing Ford for inventing cars. It’s sad to see good projects being forced to comply with regulations for fear of being targeted or because the regulations were written that way. Still, what’s even more tragic is that someone suddenly reacts and buys into laws that don’t apply to web3.
Regarding the solution, Rajat says, “Simply put, we need to stop the bad actors, not the inventions that help us move forward.”
Is the Tornado Cash ban ethical?
Crypto expert Liam Wright shares his thoughts on the subject. No entity in the Ethereum ecosystem can decide what is included in blocks and what is not. While the news is surprising, it is not yet a crisis. Currently, there is no other mining pool following Ethermine’s lead. Also, Ethereum validators like Coinbase have categorically stated that they will not censor transactions after Merge. However, this is a dangerous way to travel. This is not the way to a free and fair decentralized internet. A few steps back and potentially the path to an even darker future.
The TC code itself does nothing illegal and is completely open source. We don’t jail gun manufacturers when they use them against innocent people. When a criminal uses cash for an illegal transaction, the government does not take the blame. The code written by the TC team with the same arguments is not responsible for those who launder money over the protocol. Tornado Cash has legitimate uses and is essentially a privacy tool. I think the authorities should investigate and track how the money got into Tornado Cash and what it was used for afterwards. Because it is possible for them to find illegal activity here. It is possible that it is just a coincidence that no Tornado Cash transactions were included in the Ethermine blocks. However, given that the network generates about a third of the hash power, this is highly unlikely.
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