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Don’t Forget the Importance of Censorship Resistance – Op-Ed Bitcoin News
As people again talk about self-storage as one of crypto’s unique strengths, I want to remind everyone of an equally important fundamental value proposition of crypto that in the early days was touted as the killer feature. I’m talking about censorship resistance.
The following opinion editorial was written by Bitcoin.com CEO Dennis Jarvis.
The three pillars of censorship resistance
In the financial context, censorship resistance is the ability to perform financial actions despite the wishes of a third party.
In crypto, the three pillars of censorship resistance are:
- The freedom to act. This means that third parties cannot prevent you from sending or receiving assets.
- Freedom from confiscation. Third parties cannot take away or freeze your assets.
- Immutability of transactions. It is impossible for third parties to change or reverse transactions afterwards.
Troublesome actions increasingly carried out by centralized entities in the public and private sectors demonstrate the importance of censorship resistance. Let’s look at some examples:
Censorship in the public sector
Governments have shown an increased willingness to exercise control over financial institutions, while increasing their crypto-regulatory efforts. Earlier this year, Trudeau’s Canadian government took the unprecedented step of invoking emergency powers to freeze or suspend the bank accounts of Canadian citizens without court orders. Their crime? Donate funds to citizens participating in the Freedom Convoy protests.
The US Treasury Department’s watchdog Office of Foreign Asset Control (OFAC) made headlines this summer by banning and sanctioning addresses that used Tornado Cash, a decentralized application that improved the privacy of users by “mixing” ETH.
The US Securities and Exchange Commission (SEC) stepped up cryptoregulatory actions, best exemplified by this quote from SEC Chairman Gary Gensler who said, “…SEC will act as the policeman on the beat. As with seat belts, we must ensure that investor protection is standard in the crypto market.” This is not just empty rhetoric, the SEC nearly doubled the size of the Division of Enforcement’s Crypto Assets and Cyber Unit in 2022.
Censorship in the private sector
After merging, a majority of Ethereum’s blocks are OFAC compliant. This is a potential problem because OFAC-compliant relays will not include any transactions that interact with the Tornado Cash smart contract or other sanctioned wallet addresses as designated by OFAC. Not all blocks built by OFAC-compliant relays censor, but all blocks built by OFAC-compliant relays will censor when non-compliant transactions are sent to the network. As Martin Köppelmann, co-founder of Gnosis, noted on the state of OFAC-compliant relays,”[t]his means if the censorship validators would now stop attesting to non-censoring blocks, they would eventually form the canonical, 100% censorship chain.”
Centralized stablecoin companies Tether (USDT) and Circle (USDC) have one history cooperate with law enforcement requests to freeze assets. Circle complied with with OFAC’s Tornado Cash sanctions by banning “tainted” USDC. So far, Tether has decided not to comply, but that could change (and probably will, given enough pressure) in the future.
Outside of crypto, Paypal made international news when it released an updated policy that allowed Paypal to fine users $2,500 for spreading “misinformation.” Paypal quickly retracted the policy publicly, although much of the language remains. This includes the $2,500 fines that have existed ever since September 2021 for the very vague “promotion of hatred, violence, racial or other forms of intolerance that is discriminatory…”
While Paypal was almost universally condemned, its actions are consistent with a growing number of web2 companies, such as Twitter, Youtube and Facebook, which use their platforms to punish behavior they deem “bad” through levers such as demonetisation, suspensions and bans.
Censorship is the antidote
Censorship resistance is one of the most important value propositions of decentralized finance in general and Bitcoin in particular because it fundamentally separates the technology from all traditional financial tools. In fact, censorship resistance is so strong in Bitcoin that it makes it an economic freedom-enhancing technology. This dramatization powerfully demonstrates why:
The silver lining to the worrying increase in authoritarian actions from both the public and private sectors is that they help draw attention to censorship resistance.
Bitcoin, once the embodiment of crypto, had been ridiculed as worse than boring – obsolete. It’s nice to see this starting to shift back as people inside and outside of crypto become familiar with its deceptively simple power.
Within the crypto industry, many are noticing the slow creep of web2-like features of speed and cheap transactions that come at the expense of censorship resistance. For example, prominent developers such as the aforementioned Martin Köppelmann are sounding the alarm that the percentage of OFAC-compliant blocks needs to be fixed. It’s also nice to see debates about censorship resistance starting to take up more oxygen in the wider crypto community. I particularly liked it Erik Voorhees’s piece about the empowering nature of the hyphen.
This is not to say that all crypto projects need to be censorship resistant; Censorship itself exists on a spectrum. Nevertheless, it is important that some crypto projects remain robust against censorship. On Bitcoin.com, we are proud to offer tools that Bitcoin.com wallet, which anyone can use to store Bitcoin and other cryptocurrencies. As an industry, let us take the events of the past year to remember how important censorship resistance is. Let’s not sacrifice this industry-defining characteristic for short-term gains.
What are your thoughts on this story? Let us know in the comments section below.
Image credit: Shutterstock, Pixabay, Wiki Commons
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