Ethereum

1/ A lot has been said about transaction censoring on Ethereum. Not all of it made sense to me. So I did a little digging and a little memeing 🧵

2/ Based on https://censorship.pics (@toniw.eth) and https://www.mevwatch.info/ (@labrys), 61% of Ethereum builders, 46% of relays, & 8% of validators engage in censorship, leading to 30% of blocks being censored. Assuming those numbers are reliable, they could be better for a permissionless & credibly neutral network.

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3/ "Censorship" here means that those block builders, relays, and validators are refusing to include transactions (or a block containing transactions) to or from OFAC-sanctioned addresses. Those transactions are temporarily stuck at the bottom of the memepool (eh, memepool, get it?).

4/ "OFAC" stands for Office of Foreign Assets Control. It's an intelligence and enforcement agency of the US treasury department. It's staffed mostly with analysts and lawyers. OFAC decides who poses a threat to US interests and sanctions them by adding their name to a list of Specially Designated Nationals (SDN).

5/ If your name is on that list, you are pretty much turbo-fucked. You can say goodbye to your bank accounts, wiring money, getting a loan, being hired at a Fortune 500, & doing any business with virtually anyone relevant. You're welcome to live in Russia, DPRK, or any place where Uncle Sam and friends can't reach you.

6/ The people on that list, with one notable exception which I'll come back to, are not the kind you'd want to hang out with. Among them are DPRK hackers, Mexican drug lords, Middle Eastern terrorism financiers, and shady Russian operators who meddle in foreign elections (at least, according to OFAC).

7/ The notable exception is Roman Semenov, a Tornado Cash (TC) co-founder who got added to the SDN list in August 2023. OFAC claims that Semenov knew that the DPRK's Lazarus Group was using Tornado Cash to launder the proceeds of the Ronin bridge hack, and did nothing to stop that. So now Roman is turbo-fucked, too.

8/ If you download the SDN list from https://ofac.treasury.gov/ofac-sanctions-lists, you'll find in it 147 Ethereum addresses belonging to 24 entities, added from September 2019 onward. The repo https://github.com/ultrasoundmoney/ofac-ethereum-addresses keeps a convenient summary. Thanks, @justindrake and @toniw.eth!

rant

9/ <rant>I just want to take a quick break from this long-ass thread to mention how much the cast length limit of 320 characters sucks on Farcaster. I don't enjoy crafting those threads any more than you enjoy reading them. @dwr,eth, please let me use n storage slots for n multiples of 320 bytes!</rant>

10/ So, ignoring 91 SDN addresses linked to Tornado Cash + 5 more with no onchain history, Etherscan says the remaining 51 addresses hold 1,253 ETH worth $4M in total. Not great, not terrible. I was expecting a bit more from drug cartels and North Korean H4x0rs, to be honest. Maybe they're not true ETH maxis after all.

11/ In fact, 40 out of 51 sanctioned addresses contain only dust. Only three entities own non-negligible ETH: the DPRK's Lazarus Group (242 ETH), an Estonian CEX (74 ETH), and a Russian scammer named Danil Potekhin (937 ETH). Ya done messed up, Danil. You could have spun up 29 staking validators by now.

12/ But wait, there's less. On average, these 51 addresses transacted out for the last time 936 days ago, in July 2021. Back then, Ethereum was still under PoW, Base didn't exist, Do Kwon had yet to deploy more capital, and SBF was a genius. In other words, those addresses have been inactive for *eons* in crypto terms.

13/ So, to summarize, the OFAC is asking us to censor 51 addresses that are mostly empty, mostly dead, and which the criminal owners have presumably long replaced with fresh new wallets that we don't know of. So I'd argue that *no one* filtering out SDN addresses when building blocks is really censoring anything here.

14/ Except for Tornado Cash, of course, which remains the elephant in the room. For example, the very active TC router (https://etherscan.io/address/0xd90e2f925DA726b50C4Ed8D0Fb90Ad053324F31b) is on the SDN list, so anyone wanting to interact with it must bypass the censorship.

15/ As of today, that's pretty easy to do, because enough of the builders, relays, and validators are not filtering for SDN addresses. At worst, your mixer transaction may need to wait for a couple of blocks to be included. That's not to belittle the future concern about Ethereum's censorship resistance.

16/ The bottom line is that the whole censorship issue has been overblown, at least up until OFAC designated Tornado Cash in August 2022; the other targets are virtually irrelevant. Unfortunately, an earlier lawsuit against OFAC didn't succeed, and sanctions against TC remain in place.

17/ The other concern is more hypothetical - it is that OFAC starts adding more smart contracts to the SDN list. After all, the SEC just sued Uniswap Labs for operating as an unregistered exchange and broker dealer. Imagine what would happen if the DPRK started using Uniswap to convert tokens.

18/ Lastly, there's a lot of research going on into censorship resistance on the Ethereum roadmap, including through Enshrined Proposer-Builder Separation (ePBS), that aims to ensure that block builders and relays don't have to face the difficult dilemma of OFAC compliance vs. the cypherpunk ethos. 🎬