Two years ago tomorrow, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) sanctioned the Tornado Cash crypto mixer, which is used as a privacy mechanism for both legitimate and illicit purposes. The sanctions were imposed following allegations that it was used to launder $7 billion, including at least $455 million stolen on behalf of North Korea. In the crypto world, these sanctions were a hugely contentious issue. Today the New York Federal Reserve (NY Fed) published a staff paper exploring the impact of the Tornado Cash sanctions. The mixer is still in operation today. A key conclusion in the paper is that Ethereum’s censorship resistance is tenuous because most people complied with the sanctions.
This is based on tracking Ethereum block proposers and the builders responsible for selecting transactions for settlement. Many large builders cooperated with the sanctions. A couple of builders who did not comply with the sanctions were responsible for most of the ongoing Tornado Cash transactions. Towards the end of the sample period, a single builder was responsible for building most blocks that included Tornado Cash transactions.
“The withdrawal of other established builders from building non-cooperative blocks sheds light on the fragility of censorship-resistance of the Ethereum network,” the paper states.
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