There has been controversy in the Ethereum community over how best to respond to the threat of protocol-level transaction censorship due to U.S. government sanctions on addresses associated with Tornado Cash.
A heated debate erupted after the minder Ethereum Ethermine decided not to process transactions from the US-sanctioned Tornado Cash service, leaving members of the Ethereum community worried about what would happen if other centralized validators did the same.
The Ethereum community is debating the effectiveness of social slashing to combat censorship on the Ethereum network, as this strategy could lead to a split where some validators process transactions on the uncensored chain while others only validate the OFAC-compliant chain.
This could become a major issue if regulators require large centralized staking services such as Coinbase and other large centralized pools that collectively hold more than 50% of ETH in the Ethereum Beacon 2.0 network to only validate OFAC compliant networks.
Cyber Capital founder Justin Bones argues that slashing "is a trap" that "represents a greater risk than the OFAC regulation" and would not be a viable solution to combat protocol-level censorship.
“We are now at a critical crossroads for Ethereum with OFAC regulation looming over ETH; threatening censorship. However, the greatest threat comes from within discussions of ‘social slashing,’ multiple forks and unclear governance heralds the potential for disaster in ETH”.
Bones said that exchanges that support slashing could "deprive innocent users of their deposits," which would "violate their property rights."
Anthony Sassano, founder of the Ethereum podcast The Daily Gwei, wrote on Twitter on August 20 that “collateral damage is inevitable in social slashing….it’s worth it to protect Ethereum’s credible neutrality and censorship resistance properties.”
This is a less bearish outcome than imposing permanent censorship on the Ethereum network, he noted.
Geth developer Marius van der Wijgen said:
“If we start allowing users to be censored on Ethereum then this whole thing doesn’t make sense and I will be leaving the ecosystem….I think censorship resistance is the highest goal of Ethereum and of the blockchain space in general, so if we compromise on that, there’s not much else to do, in my opinion”.
Crypto researcher Erica Wall added that censorship resistance is a core feature of the Ethereum network today, and that while we are seeing some censorship at the forefront, “t’ll only get bad if censorship starts happening side Ethereum itself.”