Ethereum May Now Be More Vulnerable to Censorship — Blockchain Analyst

by · September 16, 2022

Ethereum’s upgrade to proof-of-stake (PoS) could make it more vulnerable to government intervention and censorship, according to the principal investigator of Merkle Science.

Speaking to Cointelegraph after the Ethereum merger, Coby Morgan, a former FBI analyst and the principal investigator of crypto compliance and forensics firm Merkle Science, expressed his thoughts on some of the risks Ethereum’s move to PoS poses.

While centralization issues have been widely discussed leading up to The Merge, Moran suggested that the prohibitive costs of becoming a validator could result in the consolidation of validator nodes into the larger crypto firms such as Binance, Coinbase and Kraken.

To become a full validator for the Ethereum network, one must stake 32 Ether (ETH), which is worth around $47,000 at the time of writing.

A pre-Merge report from blockchain analytics platform Nansen earlier this month revealed that 64% of the ETH stake is controlled by just five entities.

Source: Nansen

Morgan went on to say that these larger institutions will be “subject to the whims of governments of the world,” and when validator nodes identify sanctioned addresses, they “could be cut in rewards and then ultimately kicked off the system,” with businesses prevented from interacting with them .

Either you want to comply and you want to siphon off that kind of interaction […] or you risk being fined, investigated or potentially sanctioned yourself.

Vitalik Buterin spoke about this risk in a developer talk on August 18, suggesting that one of the forms censorship can take is validators choosing to exclude or filter sanctioned transactions.

Vitalik went on to say that as long as some validators do not comply with the sanctions, these transactions will eventually be picked up in later blocks and the censorship will only be temporary.

On August 8, crypto mixer Tornado Cash became the first smart contract to be sanctioned by a US government agency.

Related: Rep. Emmer demands an explanation of OFAC’s Tornado Cash sanction from Sec. Yellen

In response, various entities complied with the sanctions and prevented the sanctioned addresses from accessing their products and services.

The development has had a major effect on the Ethereum community, with EthHub founder Anthony Sassano tweeting on August 16 that he would consider Ethereum a failure and move on if permanent censorship occurs.