Upgrading Ethereum to proof-of-stake (PoS) may make it more vulnerable to government intervention and censorship, according to lead investigator Merkle Science.
Speaking to Cointelegraph after the Ethereum merger, Coby Morgan, a former FBI analyst, and lead investigator for crypto compliance and forensic firm Merkle Science expressed their thoughts on some of the risks posed by the transition. from Ethereum to PoS.
While centralization issues were widely discussed before The Merge, Moran suggested that the prohibitive cost of becoming a validator could lead to the consolidation of validating nodes to larger crypto firms like Binance, Coinbase, and Kraken.
In order to become a full validator for the Ethereum network, one needs to stake 32 Ether (ETH), which is worth around $47,000 at the time of writing.
A pre-merger report from Nansen’s blockchain analytics platform earlier this month found that 64% of staked ETH is controlled by just five entities.
Morgan continued to say that these large institutions will be “subject to the whims of world governments” and that when validating nodes identify sanctioned addresses, they may “be reduced in rewards and then eventually kicked out of the system,” with companies being prevented from doing so. interact with them.
Either you will comply and siphon off this kind of interaction […] or you run the risk of being fined, scrutinized or potentially sanctioned yourself.
Vitalik Buterin spoke about this risk during a developer call on August 18, suggesting that one of the forms censorship could take is that validators choose to exclude or filter sanctioned transactions.
Vitalik went on to say that as long as some validators do not respect the sanctions, these transactions will end up being repeated in later blocks and the censorship will only be temporary.
On August 8, crypto mixer Tornado Cash became the first smart contract sanctioned by a US government agency.
Related: Rep. Emmer requests an explanation of OFAC’s Tornado Cash sanction from Sec. Yellen
In response, various entities complied with the sanctions and blocked the sanctioned addresses from accessing their products and services.
The development had a big effect on the Ethereum community, with EthHub co-founder Anthony Sassano tweeting on August 16 that he would consider Ethereum a failure and move on if permanent censorship occurred.
I want to be very clear on this:
If the Ethereum base layer ends up engaging in *permanent* censorship, I will consider the Ethereum experiment a failure and move on.
Luckily, I think the Ethereum community is strong enough to fight base layer censorship.
— sassal.eth (@sassal0x) August 16, 2022