Tornado Cash domino effect and Ethereum validator story

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2022-08-16 14:27:52

In the past week, Tornado Cash has become a hot topic of discussion in the Ethereum community. However, it is worth mentioning that the “repressive” step of the US authorities inadvertently raised concerns about deeper control at the infrastructure level of Ethereum.

Tornado Cash domino effect and Ethereum validator story

The Story of Tornado Cash

A week ago, US authorities published a list of banned addresses that have ever interacted with Tornado Cash. Soon after, many projects that own a significant number of users in the cryptocurrency market such as Circle, Infura, Alchemy, or Aave … all voiced “secure” the addresses on the list above.

>> See more: Uniswap, Aave, Balancer block crypto wallets that used to interact with Tornado Cash

Not long after, a programmer of the Tornado Cash project was even arrested by the Dutch authorities for investigation.

The story of validator on Ethereum

It all started when programmer Lefteris posted a status line, asking staking organizations (Lido, Coinbase, Kraken, …) what they would do if US authorities wanted to “control” these services. Attached are statistics on the concentration of ETH in the hands of the leading liquid staking institutions in the market.

The two options offered by Lefteris are A/ Responding to protocol-level requirements and B/ Resting shutdown to ensure seamlessness for the entire network.

Shortly after, account Eric Wall also followed this story, when he asked how the Ethereum community would react if most projects chose to follow the regulations of the US authorities.

The two options Eric suggested include (X) Treat the above control as an attack on Ethereum and burn (cancel) the aforementioned stake according to the general consensus mechanism or (Y) Ignore the control.

Notably, the founder of Ethereum, Vitalik, also answered the survey with the answer of (X) – canceling the staked coins.

Accordingly, the content posted in 2018 by Vitalik is also “reviewed” to serve as a solution if the above incident occurs. Specifically:

“If 51% of validators want to control blocks, the remaining validators can implement a 99% consensus mechanism to overcome violations. And if this consensus is passed, the system will perform a fork process.”

Other perspectives

In order to reassure users after recent incidents, Aave side also said that the move to block the wallet only takes place in the Interactive interface. The organization said it has integrated TRM’s API in response to requests from OFAC.

Aave founder stani.eth also confirmed that many sources are falsifying the move of the project. Accordingly, Aave has not taken any control action at the protocol level (Protocol Level) and there is no discussion regarding this issue in the DAO.

An RPC service provider, Pokt, also had to speak up to explain the move related to Tornado Cash.

The project said, because Pocket Network Inc. (PNI) (the US-based unit) has direct contact with Pocket Portal, so all operations will have to meet the requirements of the regulatory authorities. Accordingly, Pocket Portal will also have to meet the regulation to block wallet addresses related to Tornado Cash. The project says meeting this requirement is to be able to “continue to grow and achieve its mission”.

As can be seen, most projects currently only block wallet addresses related to Tornado Cash at the application interaction layer. However, if the story goes further on the consensus aspect of the protocol (i.e., performing DAO votes to conduct “security”), this could be a turning point for the ecosystem as a whole. .

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