Ethereum
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Experts told how the community will react to regulatory pressure and how the increase in control by the US authorities in the network of the leading altcoin can affect the transactions of Russians
The transition of Ethereum to the Proof-of-Stake protocol, which took place on September 15, made significant changes to the operation of the entire system. Now, validators — network nodes with specialized software — are engaged in checking and entering transactions into the blockchain.
Validators are rewarded for adding new blocks of transactions to the blockchain. To increase the income from this activity, programs (MEV-bots) were developed that select the most profitable transactions for verification: those for which the commission for conducting is higher than for others.
The popularity of such bots is growing. But most of them are located in the United States, subject to local law and comply with the sanctions of the US Office of Foreign Assets Control (OFAC). According to the blockchain company Labrys, about 45% of the blocks in the Ethereum network are verified through such bots.
At the same time, transactions are filtered: the bot “discards” transactions associated with sub-sanctioned addresses, and as a result, such transactions do not go through and are not recorded in the blockchain. Thus, none of the 19 thousand blocks verified by MEV bots contained a transaction with the addresses of the Tornado Cash service blocked by OFAC.
Experts told RBC-Crypto about what problems Russians might have with Ethereum if the US sanctions policy is tightened, and what impact such censorship in the ETH network will have on the crypto community.
Community resistance
After the transition of Ethereum to the Proof-of-Stake algorithm and inclusion in the Tornado Cash sanctions list, the problem of censoring transactions “became in full swing,” says Aaron Chomsky, head of the investment department at ICB Fund. According to him, the US authorities, using the Ethereum case, intend to establish greater control over the crypto space – this was shown by the SEC lawsuit against crypto blogger Yan Balina. The expert explained that in court documents in this case, the agency justified the extension of American jurisdiction to ETH transactions by the fact that their processing (location of validators) took place in the United States.
Hypothetically, it cannot be ruled out that in the future Washington will want to limit the use of Ethereum services by Russian residents to the maximum extent possible, Chomsky believes. He also noted that this will be preceded by interaction with centralized intermediaries – it is not difficult to organize work at the technical level here. The expert cited as an example the current initiative of the European Union, which is discussing a ban on custodial platforms to serve Russians.
With regard to decentralized services, everything is more difficult, the specialist said. According to him, this will require creating a list of all addresses of Russian citizens (which will require a lot of time and resources), then entering it into the OFAC and constantly keeping it up to date.
At the same time, Chomsky pointed out that the US authorities in this hypothetical scenario may face community resistance. Despite the pro-Ukrainian position, Ethereum co-founder Vitalik Buterin emphasized that if transactions are censored at the level of their verification (which will be possible if more than half of the validators are willing to obey the US requirements), users can initiate a soft fork (update) in the form of a so-called “social consensus” , the implementation of which may require a third of the assets blocked in staking, the expert explained.
According to him, those who oppose state intervention and for decentralization, regardless of their political views, can support this update. If this does not happen, there will be a serious reputational blow to cryptocurrencies in general, Chomsky believes. He suggested that Russian citizens would have to switch to alternative networks where there is no such verification.
In the coming months, regulators and the community will continue to develop mechanisms to solve the problem, the expert says. He drew attention to the prediction of Aztec Network’s Zachary Williamson that the space will be divided into interoperable protocols (where KYC verification will be done through encrypted identities), and “dark networks” that will be deprived of this.
“There’s a loophole”
So far, there are no massive technical problems, as well as statements from users that there are any bans on transactions, said Artem Deev, head of the analytical department at AMarkets. However, in his opinion, all these problems for Russians who make transactions with Ethereum are possible.
At the same time, if problems arise, then most likely there will be workarounds, the expert believes. It always happens this way: sooner or later, for any ban, there will be a loophole so that the previous operations can be carried out, says Deev. But he believes that it is worth waiting for some official statements from the owners of the network or from those who will restrict the access of Russians to cryptocurrency transactions.
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