Ethereum’s Stand Against Censorship: OFAC Compliant Blocks Fall to a New Low

In a significant move for decentralization advocates, the percentage of Ethereum blocks adhering to the directives of the US Office of Foreign Assets Control (OFAC) has plummeted to 47%. This marks the lowest level since October 11th and signals a notable shift in the ongoing battle against censorship within the Ethereum ecosystem. What does this mean for Ethereum and the broader crypto space? Let’s dive in.

What are OFAC Compliant Blocks?

To understand the significance of this drop, it’s crucial to grasp what OFAC-compliant blocks are. Simply put, these are Ethereum blocks that actively exclude transactions involving entities or individuals sanctioned by the US Treasury Department’s Office of Foreign Assets Control. Think of it as a filter applied at the block level to comply with regulatory demands.

The Numbers Speak Volumes: A Victory for Decentralization?

The descent to 47% comes almost three months after OFAC compliance reached a concerning peak of 79% on November 21st. This peak sparked worries about potential censorship creeping into the Ethereum network post-Merge. However, the recent decrease is being hailed by many as a victory for those championing censorship resistance within the crypto world.

Here’s a quick look at the timeline:

• September 16th: After Ethereum’s transition to Proof-of-Stake (the Merge), only 9% of blocks were OFAC-censored in the initial 24 hours.
• November 21st: A sharp increase saw OFAC-compliant blocks skyrocket to 79%, raising alarms about potential censorship.
• January 29th onwards: After fluctuating between 68% and 75%, the percentage began a consistent decline, eventually reaching the current low of 47%.

This downward trend suggests a growing resistance to censorship pressures within the Ethereum network. But what’s driving this change?

The Role of MEV-boost Relays: Unsung Heroes of Censorship Resistance?

According to the founder of MEV Watch from blockchain consulting firm Labrys, this significant drop can be attributed to Ethereum validators increasingly choosing MEV-boost relays that do not filter transactions based on OFAC sanctions.

MEV-boost relays act as crucial intermediaries in the Ethereum ecosystem. They connect block producers (validators) with block builders, allowing validators to outsource the complex task of block construction. This system enhances efficiency and profitability for validators.

The key here is that different relays operate with varying policies regarding OFAC compliance. The shift towards non-censoring relays indicates a conscious decision by validators to prioritize censorship resistance.

Specifically, the following relays have gained traction:

• BloXroute Max Profit relay
• Ultrasound Money relay
• Agnostic Boost relay

These relays are picking up market share as validators opt for routes that don’t automatically enforce OFAC restrictions, showcasing a growing preference for a more censorship-resistant Ethereum.

Community Response: A Collective Effort Against Censorship

Lachlan Feeney, CEO of Labrys, expressed his satisfaction with the Ethereum community’s response to the censorship concerns that emerged post-Merge. He highlighted the significance of this progress, especially because it was achieved organically, without relying on a user-activated soft fork (UASF) – a measure some community members had considered to enforce censorship resistance.

Feeney stated:

“I am really happy of the Ethereum community for the progress we have achieved on this problem. When we released the MevWatch tool drawing attention to a flaw within Ethereum, the community did not stick its head in the sand but instead rose to the occasion and made significant progress addressing the issue.”

This quote underscores the power of community awareness and action in shaping the direction of decentralized networks. The Ethereum community, by actively choosing non-censoring relays, is directly contributing to a more robust and censorship-resistant network.

The Tornado Cash Sanctions: The Catalyst for Change

The issue of OFAC compliance in Ethereum gained prominence after the US Treasury Department sanctioned wallet addresses associated with Tornado Cash, an Ethereum-based privacy mixing application, on August 8th. This action brought the question of censorship in decentralized networks to the forefront.

The initial low censorship rate after the Merge, followed by the dramatic spike, and now the subsequent decline, reflects the community’s evolving response to these regulatory pressures and the inherent desire for a permissionless and censorship-resistant blockchain.

Why Does Censorship Resistance Matter for Ethereum?

Censorship resistance is a core tenet of blockchain technology and decentralization. For Ethereum, it’s not just a philosophical ideal but a practical necessity for maintaining its core values and long-term viability.

• Preserving Decentralization: Censorship undermines the decentralized nature of blockchain. If a significant portion of the network complies with external censorship pressures, it centralizes control and weakens the network’s resilience.
• Maintaining Trust and Neutrality: A censorship-resistant Ethereum fosters trust and neutrality. Users can be confident that their transactions will be processed regardless of their origin or nature (within legal bounds of the network protocol itself), promoting broader adoption and innovation.
• Protecting Financial Freedom: In a world where financial access can be easily restricted, censorship-resistant blockchains offer a vital alternative, empowering individuals and promoting financial freedom.
• Fostering Innovation: A permissionless and censorship-resistant environment encourages innovation. Developers and users are free to experiment and build without fear of arbitrary censorship, leading to a more vibrant and dynamic ecosystem.

Looking Ahead: The Fight Continues

While the drop in OFAC-compliant blocks is a positive development, Lachlan Feeney rightly points out that “there is still more work to be done.” The landscape of regulation and censorship pressures is constantly evolving. The Ethereum community must remain vigilant and proactive in safeguarding censorship resistance.

This recent trend, however, offers a powerful message: the Ethereum community is actively pushing back against censorship, demonstrating the strength of decentralized governance and the enduring commitment to the principles of a permissionless and open blockchain.

Key Takeaways:

• OFAC-compliant Ethereum blocks have decreased to 47%, the lowest since October 11th, signaling growing censorship resistance.
• This drop is attributed to validators switching to non-censoring MEV-boost relays like BloXroute Max Profit, Ultrasound Money, and Agnostic Boost.
• The Ethereum community’s active response to censorship concerns is a key factor in this positive trend.
• Censorship resistance is crucial for Ethereum’s decentralization, trust, and long-term viability.
• The fight against censorship is ongoing, requiring continued vigilance and community action.

This development serves as an encouraging sign for the future of Ethereum and the broader crypto space, demonstrating the power of community-driven decentralization in the face of external pressures.