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Censorship in Blockchain

by Osman Kuzucu

Recently we have read about Tornado Cash being sanctioned, the first smart contract sanction in existence, in the world. While it might not be very important for many, it is actually really important for people who provide services on blockchain or the infrastructure for services to be run on the blockchain. Censorship in blockchain might be coming soon and I believe we all should learn more about what is censorship in blockchain. Before diving deep, let’s learn more about what is Tornado Cash and what are coin mixers.

Mixing the Funds in Blockchain

Coin mixers are there to mix the funds

Cryptocurrencies are easily transferrable and it is often easy to exchange them for other crypto assets. Protocols like Uniswap, Curve Finance, dYdX make things much easier. However, it is not the case all the time. Sometimes users’ assets are stolen, or some crypto transactions are related with payments for illegal substances sold at the underground web. Because transactions on the blockchain could be traced back to its origins, the party receiving those illegal funds often don’t want them to be linked with their identity in real life.

I’m not going to go into too much detail here and talk about how to launder crypto assets, however, just know that there are tools that allow you to make your crypto less traceable, again I’m not saying non-traceable. And Tornado Cash was one of these tools, which allowed users to mix their dirty money with some users’ clean money so that the money leaving the contract can’t be directly linked to the funds that were illegally acquired.

Censored Tornado Cash User

Tornado Cash

Now as we have said, Tornado Cash allows the link between illegal funds and the money coming out of the protocol to be broken. However, there is one thing that can’t be broken; we can still trace funds back to the Tornado Cash smart contract. One might track the transaction back to the Tornado Cash and might ask why you needed to use Tornado Cash but there is no proof that you mixed your illegal crypto with some clean crypto. Since we don’t have a control of who does what with their crypto whether it was acquired legally or illegally (as long as we don’t hold the private key to that account), we can’t block users from using Tornado Cash, however, we can see what comes out of it and instead censor that.

That is exactly what happened, the authorities in the US, for the first time in the world, is sanctioning a smart contract and it is now a criminal activity to conduct business if the funds are somehow related to the Tornado Cash.

Blockchain Censorship

There goes the question now, if the authorities can sanction a smart contract, see all the outs from that address and warn any other parties involved to not conduct business with users who received funds from that address, what’s stopping them from sanctioning any other smart contract? Today it was the Tornado Cash, and perhaps tomorrow it will be Uniswap, or dYdX. At this point it is very important for us to understand the term decentralization.

We are often told that blockchains are decentralized and censorship resistant, however, most of the users often use custodial services. Which means that we don’t buy our crypto from a DEX or P2P trades, but we go to a CEX whale – such as Binance – to buy our crypto. And when we buy, we don’t even withdraw our funds. Even worse, during the recent Solana wallet hack we saw that people were advised to transfer their funds to Binance because Binance knows how to safely store funds better than the average user (or in the last case, average developer).

What then?

So, it all comes to this, IF we are not one hundred percent decentralized, there is no way we can eliminate the censorship on the blockchain. If at the end of the day we are still measuring wealth with USD, then we are bounded to play with the rules of SEC and other US authorities. This doesn’t necessarily mean that it’s a bad thing, and I personally believe it’s actually something good. Rules and laws exist for certain reasons, and they are aimed to protect the people from that society. That’s why, regulatory compliance and sanctions of such protocols might be reasonable.

At the end, yes, every user deserves privacy but we have to ask ourselves the question; who needs more privacy; an average developer like myself who works 12 hours a day, or some criminal who is selling illegal substances on the TOR network? Providing tools that bring privacy brings that privacy to both of us, and giving up from protocols like Tornado Cash would be a larger problem for them than to me. So, my result; yes, blockchain censorship is a thing and it might cause some problems to the individuals. However, in most cases it is beneficial for the society. And that’s why, we are running omchain!

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omchain is a regulatory compliant POA blockchain with EVM support and high throughput with maximum speed. Feel free to check our docs page to learn more about our soliton and how you can utilize it on your business.

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