According to Merkle Science, Ethereum’s upgrade from proof-of-stake to PoS may make it more susceptible to government intervention and censorship.
Cointelegraph spoke to Coby Morgan after the Ethereum Merge. He is an ex-FBI analyst and Lead Investigator for crypto compliance at Merkle Science.
Although centralization has been a major topic of discussion leading up to The Merge Moran suggested that the prohibitive cost to become a validator could lead to the consolidation of validator nosdes to larger crypto firms such as Binance, Coinbase and Kraken.
To become an Ethereum validator, one must stake 32 Ether (ETH) which is approximately $47,000 at the time this article was written.
Nansen’s blockchain analytics platform revealed earlier this month that only five entities control 64% of staked ETH.
Morgan said that larger institutions would be “subject the whims government in the world” and that validator nodes can identify sanctioned addresses to “be slashed Rewards and then eventually kicked out the system”, with businesses being prevented from interfacing with them.
Either you’ll comply or you risk being fined, scrutinized or even sanctioned.
Vitalik Buterin discussed this risk during an Aug. 18 developer conference, suggesting that validators could choose to filter or exclude sanctioned transactions as one form of censorship.
Vitalik stated that as long validators don’t comply with the sanctions then transactions will eventually be picked-up in later blocks and the temporary censorship would be lifted.
Tornado Cash, a crypto-mixer, was sanctioned by the U.S. government on Aug. 8.
Related: Rep. Emmer asks Sec. for explanation of OFAC’s Tornado Cash sanction Yellen
Many entities responded by complying with the sanctions. They have prevented those sanctioned from accessing their products or services.
This development has had a significant impact on the Ethereum community. Anthony Sassano, co-founder of EthHub, tweeted on August 16 that he considered Ethereum a failure and would move on if there is permanent censorship.
Let me be clear: If the Ethereum base layer engages in permanent censorship, then I will declare the Ethereum experiment a failure. I believe that the Ethereum community is strong enough against base-layer censorship.
— August 16, 2022, sassal.eth @sassal0x