Tuesday, 31 January 2023
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Ethereum is under attack as U.S. sanctions apply at a protocol level

Ethereum is under attack as U.S. sanctions apply at a protocol level

The hope of a decentralized, open, free internet is in jeopardy right now. This is not hyperbole, FUD, or clickbait. Ethermine, the largest Ethereum mining pool, no longer produces blocks containing Tornado Cash transactions. This is likely due to OFAC sanctions and is an example of censorship at the protocol level.

Crypto analyst, Takens Theorem, discovered that Ethermine has stopped processing Tornado Cash transactions and presented the chart below. CryptoSlate reviewed on-chain data and confirmed that Ethermine had not produced a block that included a Tornado Cash transaction during the timeframe shown below.

We have to go back roughly ten days to find a block produced by Ethermine that includes a Tornado Cash transaction. Block 15306892 was created on August 9th and was mined by Ethermine. The block had a 10 ETH transaction processed through the Tornado Cash router.

A review of the most recent Tornado Cash Router transactions showed that it was dominated by Hiveon, P2Pool, 2Miners, and others.

Why does this matter?

Why does this matter? Recently, the U.S., via OFAC, sanctioned the use of Tornado Cash, making it illegal for any U.S. entity to interact with the protocol.

Following this sanction, Circle “blacklisted” USDC on the Ethereum network so that any holder who had interacted with Tornado Cash would no longer be able to interact with the smart contract. This move essentially froze all $USDC that had passed through Tornado Cash.

Next, DeFi protocols such as Aave, Uniswap, Balancer, and others introduced an API from TRM Labs, which disabled the front end of their dApps, essentially banning addresses sanctioned by OFAC.

Aave reportedly restored access to addresses that had been “dusted” with 0.1 ETH by a hacktivist attempting to highlight one of the critical issues with adhering to the sanctions. According to OFAC, any address that interacted with Tornado Cash was now under sanction from the U.S. Thus, when the hacktivist sent 0.1 ETH to several influential people in the crypto space, it showcased that the sanctions could easily be exploited.

While it is arguably good that Aave has restored access to those high-profile people who were targeted, the question remains, “what will happen to users who are targeted by such an attack in future?”

If I don’t like my boss, so…

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