Ethereum Centralization Concerns Resurface As 51% Of Blocks Produced Are OFAC Compliant, Hoskinson Responds

Following The Merge, centralization concerns have run rampant, and now the Ethereum community has one more reason to be concerned as OFAC-compliant blocks reach a significant 51% level.

In a tweet on Friday, Gnosis co-founder Martin Köppelmann raised fresh Ethereum centralization concerns as he highlighted that data from mevwatch.info showed that 51% of Ethereum blocks were compliant with the Office Of Foreign Assets Control (OFAC), the sanctions enforcement arm of the US Treasury.

We reached another sad milestone in censorship: 51%
This means if the censoring validators would now stop attesting to non-censoring blocks they would eventually form the canonical, 100% censoring chain. pic.twitter.com/JrYUjowLpt

— Martin Köppelmann 🇺🇦 (@koeppelmann) October 14, 2022

While Köppelmann asserts that should these validators decide not to attest to blocks carrying non-OFAC-compliant transactions, they could effectively censor the chain, it remains unclear if this will be the case. As pointed out by Danny Ryan, the data is for censoring blocks and not validators, which notably has technical fixes.

This is censoring blocks, not censoring validators. Many validators connect to many relays. This shows censoring relay is most profitable by some distribution

Analysis over time can show to some extent if a given validator is exclusively using a censoring relay

— dannyryan 🐼🔥 (@dannyryan) October 14, 2022

However, it is a different story if these validators choose to censor the chain and choose OFAC-compliant MEV relays as a result. In that case, as Jon Charbonneau of the New York Times pointed out, the issue ultimately comes down to what can be considered a slashable offense on the blockchain.

If argument is that validators are:
(1) censoring on their own, and/or
(2) intentionally using censoring relays bc they want to censor

Then validator censorship mostly falls back to UASF/slash convo

What can FB do about this that you’re calling on?https://t.co/BBEXyiBgCf

— Jon Charbonneau (@jon_charb) October 14, 2022

As pointed out by a speaker at Devcon 6: Bogota, an annual Ethereum conference, this policy is one that the community needs to come together to set, as per a video shared by prominent crypto investor Eric Wall sharing Köppelmann’s concern. Notably, Wall questions if the Flashbot system is the problem.

51% of the blocks in Ethereum are currently being censored (OFAC compliant).

Is Flashbots the enemy? Should we slash all validators that use Flashbots and start afresh with a new set of validators? pic.twitter.com/iqawTeIzHj

— Eric Wall X 🏴 (@ercwl) October 15, 2022

It is worth noting that in a bid to encourage people to run independent validators and stake with independent validators, Flashbots provide access to MEV boost relays to allow for fair competition with institutional platforms. Effectively allowing users to access a market of block builders to outsource block production. Notably, MEV boost allows users to choose between several MEV Relays, some of which are OFAC compliant.

As explained by Flashbot developer Bert Miller when CryptoMckenna anticipated the present situation, validators are not required to pick OFAC-compliant relays and have the option of picking from several non-compliant relays. Consequently, it increases the probability that these validators are choosing to censor the Ethereum chain and choosing these censorship relays.

Hoskinson Responds

Notably, Cardano founder Charles Hoskinson in response to the rising concerns shared a GIF showing a mocking acknowledgment.

https://t.co/LLHLdBmLLw pic.twitter.com/80BB20oUaI

— Charles Hoskinson (@IOHK_Charles) October 14, 2022

It is worth noting that the Input Output Global (IOG) chief following the Ethereum Merge has not missed any opportunity to highlight perceived demerits of the Ethereum proof-of-stake (PoS) consensus application. Most recently, Hoskinson likened Ethereum to the Hotel California of crypto, as there is no clarity on when Ethereum stakers will be able to access their staked Ethereum.

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