Ethereum's Escalating Censorship Issue: An In-depth Analysis

• Ethereum: Facing Escalating Censorship Concerns
• The Tornado Cash Controversy
• Understanding the Increased Censorship
• Impact of Censorship
• Understanding the Shift in Ethereum's Transaction Infrastructure
• Working of Ethereum
• Transition from Relayers to Block Builders
• The Way Forward

Ethereum: Facing Escalating Censorship Concerns

Ethereum$2,315 -2.42%'s inherent appeal to blockchain enthusiasts lies in its open, decentralized structure. However, recent data indicates an uncomfortable rise in censorship, especially with an increase in attempts to block transactions linked to entities hit by U.S. sanctions.

The Tornado Cash Controversy

Ethereum faced a daunting challenge when the U.S government imposed sanctions on Tornado Cash. This Ethereum-based program was labeled as a tool used by terrorists and U.S.-sanctioned entities, leading to its integration into the blacklist which includes countries like Iran and North Korea. The blockchain community's initial reaction was defiance, with many believing Ethereum's decentralized nature would keep it immune to such "censorship."

Understanding the Increased Censorship

However, the reality seems to be quite different. Research done by Toni Wahrstätter, a researcher at the Ethereum Foundation, reveals that approximately 72% of data blocks posted to MEV-Boost (middleware used by most Ethereum validators) are now regarded as "censored." This is a significant hike from around 25% in November 2022.

Block builders, who possess the power to determine which transactions are included in their blocks, are the ones to decide the blockchain content. Among the top five block builders, only "Titan Builder" explicitly claims to not "filter" transactions.

Impact of Censorship

If Titan begins to censor, Ethereum would be looking at over 90% censorship. Sanction-breaking transactions can still infiltrate Ethereum, but this process is more costly and time-consuming. Wahrstätter refers to this transaction throttling as an attack on the very essence of cryptocurrency.

Understanding the Shift in Ethereum's Transaction Infrastructure

Wahrstätter's research offers insights into a growing transformation in Ethereum's transaction apparatus. The network's infrastructure has subtly become dominated by a few major participants: trading bots and block builders who manage almost all Ethereum transactions before they officially register on the chain's ledger.

Working of Ethereum

Ethereum's core network operation is fairly straightforward: a user-submitted transaction doesn't immediately make it to the blockchain. Instead, it enters a mempool, awaiting processing. Validators then gather these transactions into blocks and add them to the blockchain, in exchange for fees and newly-minted ETH.

Transition from Relayers to Block Builders

MEV-boost, introduced by Flashbots, has inadvertently transformed Ethereum's activity, consolidating critical infrastructure in the transaction pipeline. When the U.S. government imposed sanctions on Tornado Cash, MEV-Boost's relayers were implicated for censoring Ethereum. However, recent times have seen a shift towards the block builders instead of the relayers.

Of the five major block builders, four have been involved in censorship per Wahrstätter's research. This development is not entirely unpredictable, given the potential legal consequences highlighted by recent legal actions against crypto exchange Binance and its CEO, Changpeng Zhao.

The Way Forward

Beyond the issue of neutrality, Wahrstätter's research underscores how Ethereum's MEV economy centralizes key aspects of the chain's operation, leading to potential security risks and neutrality concerns. Five builders construct 90% of Ethereum blocks, while four relayers are responsible for 96% of blocks dispatched to validators.

These issues of centralization and censorship are of serious concern to Ethereum's developers. Vitalik Buterin, Ethereum's co-founder, has included measures against censorship in his latest proposed roadmap for the blockchain.

While solutions such as private mempools - where transactions are issued directly to builders, providing a way around censorship - seem promising, they may also present new challenges for the network, such as increased fees, reduced transparency, and reintroduction of middlemen.

Edited by Jonathan Stoker