Ethereum under attack as US sanctions apply at protocol level – CryptoSlate

Ethereum under attack as US sanctions apply at protocol level – CryptoSlate

The hope for a decentralized, open and free Internet is currently in danger. 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 Taken’s Theorem discovered that Ethermine has stopped processing Tornado Cash transactions and presented the following chart. CryptoSlate reviewed on-chain data and confirmed that Ethermine had not produced a block containing a Tornado Cash transaction during the period provided below.

We have to go back about ten days to find an Ethermine produced block containing a Tornado Cash transaction. Block 15306892 was created on August 9th and mined by Ethermine. The block had a 10 ETH transaction processed through the Tornado Cash router.

A review of recent Tornado Cash Router transactions showed that they were dominated by Hiveon, P2Pool, 2Miners, and others.

Why is that important?

Why is that important? Recently, the US, through OFAC, sanctioned the use of Tornado Cash, making it illegal for any US entity to interact with the protocol.

Following this sanction, Circle “blacklisted” USDC on the Ethereum network, preventing any holder who had interacted with Tornado Cash from interacting with the smart contract. This move essentially froze all of the $USDC that had passed through Tornado Cash.

Next, DeFi protocols like Aave, Uniswap, Balancer, and others introduced an API from TRM Labs that disabled the front-end of their dApps, essentially banning addresses sanctioned by OFAC.

Aave reportedly restored access to addresses that had been “dusted” by a hacktivist with 0.1 ETH to highlight one of the critical issues in sanctions compliance. According to OFAC, any address that interacted with Tornado Cash has now been sanctioned by the US. So, when the hacktivist sent 0.1 ETH to several influential people in the crypto space, he showed that the sanctions could be easily exploited.

While it’s arguably a good thing that Aave has restored access to the high-profile individuals who were targeted, the question remains, “What will happen to users targeted by 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 get banned from Aave now too? If so, how will Aave prove his claim is valid? Banned users can still either fork the protocol or interact via CLI, but this is out of reach for most users.

Ethermine’s decision to stop producing blocks containing Tornado Cash transactions goes one step further. The selection of transactions to be processed contradicts the basic principles of the Ethereum blockchain. The network aims to be open source, free, decentralized and inclusive.

Protocol-level censorship

While other miners are currently still processing the transactions, there is a possible world where Tornado Cash will no longer have miners willing to process its transactions if others follow Ethermine’s lead.

Vitalik Buterin was so outraged at the thought of validators complying with OFAC sanctions after The Merge that he declared that all validators complying with the sanctions should burn their ETH stake. He agreed that actions that do not involve Tornado Cash transactions should be viewed as “an attack on Ethereum and the burning of its stake by social consensus.”

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 blocks with TC to ignore from the transaction pool…but the fewer validators under US regulation, the better.”

Now, within a day of the above conversation, we are seeing a real-world example of proof-of-work validators ignoring tornado cash blocks.

Ethermine is not a US based company and as such does not fall under the jurisdiction of OFAC sanctions. However, miners using the Ethermine pool could be located in the US. If Ethermine mines a block containing a Tornado Cash transaction, an interaction with Tornado Cash could be considered, thereby breaking the sanctions.

First reaction from the community

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

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

Harsh Rajat, founder of the Ethereum push notification service, shared similar concerns about CryptoSlate,

“Regulations banning an open-source technology are akin to charging Ford with inventing cars. It is sad to see that good projects are forced to comply with regulations for fear of being targeted or because the regulations are written that way. Even more tragic, however, is the way someone knee-jerkly reacted and bought laws that just can’t be applied to web3. “

Regarding a solution, Rajat said, “Put simply, we must stop bad actors, but not the inventions that help us move forward.”

No entity within the Ethereum ecosystem should be able to decide what is included in blocks and what is not. Although the news is frightening, it is not yet a crisis. No other mining pools appear to be following Ethermine’s example, and Ethereum validators such as Coinbase have categorically stated that they will not censor transactions after The Merge.

However, this is a dangerous path. This is not the direction towards a free and fair decentralized internet; it’s several steps back and possibly the way to an even darker future.

The Tornado Cash code itself does nothing illegal and is completely open source. We don’t arrest gun manufacturers when they’re used against innocent people. The government takes no blame when a criminal uses cash in an illegal transaction. Using the same arguments, the code written by the Tornado Cash team is not accountable to those who launder money through the protocol.

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

There is a possibility that it is just a coincidence that no Tornado Cash transactions are contained in Ethermine blocks. However, since it produces about a third of the network’s hashrate, this is unlikely.

CryptoSlate reached out to Ethermine for comment but received no response. A moderator on the Discord forum told CryptoSlate that “Ethermine/BitFly is a incorporated GmbH, so they are bound by Austrian law, so there’s a chance it’s a compliance measure. However, I can’t say for sure and will contact the admin team.”

Original research and findings by Oluwapelumi Adejumo.

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