We’d rather stop betting than censor Ethereum: Coinbase CEO

Coinbase CEO Brian Armstrong has chimed in on ongoing debates surrounding Ethereum’s ability to remain resistant to censorship during Proof-of-Stake.

Coinbase would not censor Ethereum

If Coinbase was forced to choose between preserving Ethereum’s network integrity and complying with regulators to censor transactions, it would prioritize the protocol, Brian Armstrong has said.

It’s a hypothetical we hopefully won’t face. But if we did, we’d go with B, I think. Must focus on the bigger picture. There may be a better alternative (C) or a legal challenge which may also help to achieve a better result.

— Brian Armstrong – barmstrong.eth (@brian_armstrong) 17 August 2022

To answer a hypothetical scenario on Twitter Thursdaythe CEO of the US crypto exchange said that the firm would rather shut down its staking service than comply with potential regulatory requirements to censor Ethereum transactions at the network level.

“If regulators ask you to censor at the ethereum protocol level with your validators, you will: A) comply and censor at the protocol level, [or] B) shut down the stake service and preserve network integrity,” Rotki founder Lefteris Karapetsas wrote in a post marks some of the biggest Ethereum token players, including Coinbase. In response to the question, Armstrong said:

“That’s a hypothetical we hopefully won’t face. But if we did, we’d go with B, I think. Gotta focus on the bigger picture. There might be a better option (C) or a legal challenge as well that might contribute to a better result.”

Armstrong’s comments come amid a raging debate in the cryptocurrency community about the potential strength of Ethereum’s censorship resistance following the expected “Merge” upgrade to Proof-of-Stake, which is scheduled to ship next month.

The debate started last week after the US Treasury Department’s Office of Foreign Assets Control sanctioned the Ethereum-based privacy protocol Tornado Cash. A few days later, Dutch authorities arrested Tornado Cash developer Alexey Pertsev suspected of “hiding criminal financial flows and facilitating money laundering.”

Several notable US-based crypto entities, including key blockchain infrastructure providers Infura and alchemy and stablecoin issuer Circle, immediately complied with the sanctions, blocking users from accessing the site and blacklisting Tornado Cash-related addresses. dYdX and Aave, two of Ethereum’s most popular DeFi applications, also blocked some users after the Treasury ban (both projects later lifted some of the blocks after community controversy).

The unprecedented nature of the ban and the swift response of centralized service providers raised concerns that centralized entities may eventually be forced to censor transactions at the Ethereum network’s protocol level in the future. Some raised fears that Coinbase could potentially come under regulatory pressure to exclude certain transactions from being included in new blocks on Ethereum. According to Dune data compiled by hildobby, Coinbase is slated to become the third largest Ethereum validator with over 14.7% market share of all ETH stakes.

If a large centralized validator like Coinbase chose to censor transactions, other Ethereum validators and clients could potentially decide to coordinate and cut the validator’s efforts. It would effectively destroy all the ETH that the investors had entrusted to it. According to a recent Twitter survey posted by Eric Wall, a significant majority of users, including Ethereum’s creator, Vitalik Buterin, would choose to cut a validator’s effort if they censored transactions at the network level.

As the debate rages, Armstrong’s indication that Coinbase would rather shut down its staking service than comply with potential censorship demands will likely come as a relief to the Ethereum community.

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.