Is Ethereum’s Censorship Problem Taking a Turn?

Ethereum’s “censorship” problem has grown over the past few months, with some validators in charge of maintaining the blockchain’s ledger ignoring certain transactions to comply with regulations. But crypto’s anti-censorship purists may have reason to be hopeful.

In the past 24 hours, 66% of blocks that made it onto the Ethereum blockchain were OFAC-compliant, meaning they excluded transactions involving parties sanctioned by the U.S. Treasury Department’s Office of Foreign Assets Control.

This article originally appeared in Valid Points, CoinDesk’s weekly newsletter breaking down Ethereum’s evolution and its impact on crypto markets. Subscribe to get it in your inbox every Wednesday.

Traditional institutions typically comply with government sanctions, but in the idealistic world of crypto what some call compliance others call censorship. As more and more Ethereum validators choose to comply with OFAC, sanctioned transactions are taking longer to make it onto Ethereum’s chain, and ideological purists are arguing the network is beginning to fall short on its founding commitments to financial freedom and neutrality.

But the tide may be turning, with the number of censored blocks on Ethereum seeing a steady decline between mid-November and mid-December. According to mevwatch.info, a watchdog site for monitoring Ethereum “censorship”, the highest number of censored blocks came on Nov. 21, when 79% of blocks relayed on Ethereum came from parties that exclude OFAC-sanctioned transactions. Since then, the lowest day was Dec. 9, when censored blocks made up 64%. Most days censorship sits at 68% to 72%.

So what is causing the steady decrease in OFAC-compliant blocks? In addition to community backlash against censorship, there are now more OFAC-agnostic ways of using MEV-Boost – a piece of third-party software that pre-assembles blocks for Ethereum validators.

What’s the problem with MEV-Boost?

Ever since the Ethereum Merge in September, most of the blocks that make it onto the blockchain pass through a middleware component called MEV-Boost, a piece of software that allows validators – those who propose and approve “blocks” of transactions to Ethereum’s ledger – to request pre-made blocks from a network of builders.

MEV-Boost was originally built to help validators extract MEV, or Maximal Extractible Value – additional profit that block builders and validators can receive from strategically reordering or including transactions within a block.

The software, which was built by Ethereum research and development firm Flashbots, was born out of the firm’s efforts to solve some issues created by MEV, including centralization and censorship. It ​​was supposed to make it possible for any Ethereum validator, large or small, to easily bite out a piece of the MEV pie.

In large part, it has succeeded in its goal. Whereas MEV might have only been accessible to the most sophisticated validators had MEV-Boost not existed, the software is today used by 91% of Ethereum’s validators.

But problems arose with MEV-Boost after OFAC sanctioned the Ethereum mixer program Tornado Cash in August.

Many blockchain developers were outraged by the sanctioning of Tornado Cash. Writing code is seen by them as a form of free speech, and they viewed the banning of smart contracts as a form of censorship. But not all of the businesses and individuals that operate Ethereum’s infrastructure (e.g., its validators) were eager to test OFAC’s enforcement resolve.

Validators that use MEV-Boost must select a third-party “relayer” tasked with delivering them pre-built blocks. Some of these relayers, out of sensitivity toward OFAC, automatically filter out blocks containing Tornado Cash transactions. These “censored” relayers included Flashbots’ own relay, the one that most users of the MEV-Boost platform tend to use by default.

As a result of the proliferation of OFAC-compliant relays, Tornado Cash transactions were taking longer than usual to make it onto Ethereum because those transactions needed to find other ways to be included on the blockchain.

Read more: As Censorship on Ethereum Begins, Could This Open-Sourced Code Help Counter It?

If enough validators (or relays) refuse to process OFAC-sanctioned transactions, it is conceivable that those transactions might eventually become censored from the chain entirely.

So in the weeks since this has all taken place, what has the community done to try to reverse Ethereum’s censorship course?

New players in the game

The effort to push for relay diversity has intensified. On Oct. 14, 81% of blocks relayed with MEV-Boost did so via the Flashbots relay. Today, that number sits at 74%.

Since the last time I wrote about MEV-Boost, four new relayers that are noncensoring have entered the market. Those relayers are Agnostic, Relayoor, Ultrasound and Aestus.

Although they currently make up a tiny fraction of blocks relayed, there’s now greater diversity for validators to connect with (six of the 10 relays that are now available are noncensoring).

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— GnosisDAO (@GnosisDAO) November 30, 2022

The Agnostic relay was introduced by the team behind Gnosis Chain. Its co-founder, Stefan George, told CoinDesk: “We see a significant value added in Ethereum being a credibly neutral platform. This is at risk if most validators conform to censorship requirements by a particular jurisdiction.”

George added: “There was the argument made that even in a scenario where 90% [of blocks] are censoring, it is still censorship resistant because you have to wait longer for your block to be mined, but we saw this as a weak argument as neutrality is lost and certain transactions are favored over others. This is why we criticized the direction and started offering this relay as a constructive step to improve the network.”

Read more: FTX Blowup Helped Enrich the Ethereum Validators Who Run the Blockchain

Others attribute the decline in censorship to the fact that validators are more willing to connect to relays that are not Flashbots, now that they have become more comfortable with the MEV-Boost space.

Uri Klarman, CEO of bloXroute, which runs three relayers, two of which are noncensoring, told CoinDesk that “the main reason we're seeing the censorship percentage decreasing is because more and more validators connect to bloXroute's relays, which are now providing 20% to 25% of the blocks.”

George of Gnosis Chain also believes that “most validators used the Flashbots relay mostly out of convenience and not because they required OFAC compliance. That's why it was only an operational issue for them to switch once an alternative became available.” George added that “the public sentiment certainly helped to make this change happen faster.”