A staff report published by several New York Federal Reserve employees found that Ethereum “is not immune to censorship and cooperation,” which depends on the roles of several actors across the network. The paper examined how the network performed after Tornado Cash, one of the main mixers in the blockchain, was sanctioned by the OFAC.
New York Federal Reserve Staff Paper on Tornado Cash Concludes Ethereum Is ‘Not Immune to Censorship and Cooperation’
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New York Federal Reserve Staff Report: Ethereum Behavior After Tornado Cash Sanctions Indicates ‘Tenuous’ Censorship Resistance
While network proponents have highlighted the censorship resistance of Ethereum as a key element for its adoption, this is being contested. A New York Federal Reserve staff report titled “Regulating Decentralized Systems: Evidence from Sanctions on Tornado Cash” indicates this depends on many factors and network actors.
The document examined the network behavior after Tornado Cash, one of the largest mixers operating on Ethereum, was subject to sanctions enacted by the U.S. Office of Foreign Assets Control (OFAC). The accusations, which preceded a formal indictment against Tornado Cash founders, prompted Ethereum actors to take action and cooperate (or not) with these restrictions.
The report found that, while it is true that Tornado Cash-linked transactions were still confirmed after these events, it is also true that large block builders increasingly cooperated with these measures. In the same way, most block proposers also cooperated with the OFAC sanctions. At the validation level, however, all nodes were non-cooperative, validating blocks with Tornado Cash transactions.
Toward the end of the period examined, almost all blocks with Tornado Cash transactions were built by just one entity, showing that Ethereum’s censorship resistance was “tenuous.” “Given that the market for block building is open, the withdrawal of other established builders from building non-cooperative blocks sheds light on the fragility of censorship-resistance of the Ethereum network,” the report stressed.
Furthermore, the report states that the motivations behind non-cooperation with these sanctions were derived from philosophical reasons. “This use-case shows Ethereum is not immune to censorship and cooperation – different actors across the ecosystem have different roles that influence where censorship and cooperation can be enforced,” the New York Federal Reserve staff report concluded.
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