“A rare crypto project can afford to work in conditions of complete decentralization, one of the key parameters of which is resistance to censorship. Any community is forced to be guided in this matter by its own rules, principles and state legislation. Although attempts are being made to exclude the human factor from the blockchain, experiments on the synthesis of cryptocurrencies and artificial intelligence are still in their infancy. Therefore, the priority will be maintained for a long time by public consensus and […]”, — write: businessua.com.ua
A rare crypto project can afford to work in conditions of complete decentralization, one of the key parameters of which is resistance to censorship. Any community forced to be guided in this matter by its own rules, principles and state legislation.
Although attempts are being made to exclude the human factor from the blockchain, experiments on the synthesis of cryptocurrencies and artificial intelligence are still in their infancy. Therefore, the priority will be maintained for a long time according to public consensus and personal decisions of network participants.
ForkLog figured out what arguments both supporters of censoring cryptocurrency operations and their opponents give.
Censorship at the blockchain levelA clear example of blockchain censorship is the activity of Ethereum validators. When the US Treasury Department sanctioned Tornado Cash protocol ETH addresses in 2022, some network participants refused to process mixer transactions.
Such decisions are their personal choices, which in no way affect the Ethereum protocol, but it is precisely for this reason that the Federal Reserve Bank of New York has concluded that Vitalik Buterin’s project is surprisingly susceptible to censorship.
Although the blockchain can operate impartially, some of its participants choose to follow the sanctions themselves. The fact is that validators use special intermediary services that offer a profitable order of transactions, deducting a small commission for “approval” of the block.
This practice is known as maximum extracted value (MEV).
Social contractThe ecosystem of any large crypto project consists of many user groups, sometimes with opposing goals and values. But they all work in the same blockchain, protocol, smart contract.
As in the Ethereum example, we see that some infrastructure participants have chosen to censor, although the network itself does not provide for it. In essence, this is the public consensus on the issue of sanctions.
Source: MEV Watch.
According to Mixer.Money experts, the use of cryptocurrencies to circumvent sanctions demonstrates the inability of states to adapt to new technological and economic realities.
“Even the most ardent opponents and skeptics have to involuntarily admit the power of cryptocurrencies, their sustainability and reality. Accordingly, this sphere, like all others, simply needs to be regulated. The only problem is that this phenomenon is not at all similar to classical financial instruments, and the regulatory legislation should also be different. But for now, the movement is following the second path – control, censorship, and if they are impossible – total bans,” service analysts believe.
The case of MakerDAOA current example of a community willing to accept censorship at the expense of decentralization is MakerDAO, the issuer of the largest algorithmic stablecoin DAI.
At the end of August 2024, the company announced the rebranding and release of new coins, which are planned to replace the old ones. From September 18, one DAI can be exchanged for one USDS stablecoin and one MKR protocol management token for 24,000 SKY.
The new “stable coin” is planned to be endowed with the functions of freezing users’ addresses, as is the case in the centralized USDT and USDC.
There was no mention of this in the announcement to the general public, but the topic still gained publicity, and MakerDAO founder Rune Christensen had to reveal the details of the plan.
He noted that stablecoins have their own trilemma, which suggests that achieving dollar peg, decentralization, and scaling to large sizes at the same time is impractical. And it is for the last point that they need a mechanism for compliance with regulatory requirements. Hence the need for a freeze function in USDS tokens.
This suggests that it is extremely difficult to scale projects to large sizes without meeting the requirements of regulators. In addition, according to Christensen, such an approach makes it possible to create new products based on passive income, which is formed from the purchase of government bonds.
Simply put, to get additional options for earning, you need to enter the US government debt market – with all the consequences that follow. “Classic” stablecoins like USDT, which buy US government securities in exchange for loyalty, came to exactly the same format.
What we end up seeing is a plan where DAI gives up being pegged to the dollar in exchange for decentralization, and USDS gives up decentralization in exchange for being pegged to the dollar.
According to Mixer.Money experts, this trend in the world market will only intensify.
“As long as the laws of the countries can be interpreted, as in the case of Pavel Durov, in favor of the state, any large-scale decentralized business immediately falls into the risk zone,” the company’s representatives summarize.
ConclusionsThe growth of the crypto market has shown that decentralization can be achieved only in projects with the largest capitalization and number of active participants.
The small scale of the network itself is dangerous due to the limited community that is easily influenced by the outside, no matter how perfect the technology.
However, when the project is scaled to serious dimensions, there is resistance from the regulatory authorities, for which not all projects and communities are ready. And for many, decentralization is simply not that important or not needed at all.
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