Ethermine is the largest Ethereum mining pool and has stopped processing sanctioned transactions. Ethermine is no longer producing blocks containing Tornado Cash transactions. This is likely due to OFAC sanctions and is an example of protocol-level censorship.
Crypto analyst, Takens Theorem, discovered that Ethermine has stopped processing Tornado Cash transactions and presented the graph below.
You have to go back about 10 days to find a block produced by Ethermine that includes a Tornado Cash transaction. Block 15306892 was created on August 9 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.
Recently, the United States, via OFAC, sanctioned the use of Tornado Cash, making it illegal for any US entity to interact with the protocol.
As a result of this sanction, Circle “blacklisted” USDC on the Ethereum network so that any holder who interacted with Tornado Cash could no longer interact with the smart contract. This decision 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 OFAC-sanctioned addresses.
Aave reportedly restored access to addresses that had been “dusted” with 0.1 ETH by a hacktivist attempting to expose one of the critical issues with sanctions compliance. According to OFAC, any address that interacted with Tornado Cash was now sanctioned by the United States. So when the hacktivist sent 0.1 ETH to several influential people in the crypto space, it showed that sanctions could easily be exploited.
While it’s probably good that Aave restored access to these high-level people who were targeted, the question remains, “what will happen to users who are targeted by such an attack in the future?”
If I don’t like my boss, so I send him 0.1 ETH via Tornado Cash, will he also now be banned from Aave? If so, how will Aave prove that his request is legitimate? Banned users can still fork the protocol or interact via CLI, but this is out of reach for most users.
Ethermine’s choice to stop producing blocks that include Tornado Cash transactions is a step beyond all of the above. The selection of transactions for processing goes against the fundamental principles of the Ethereum blockchain. The network is supposed to be open-source, free, decentralized and inclusive.
Like an attack on Ethereum?
While other miners are still processing transactions at the moment, if others follow Ethermine’s lead, there is a possible world where Tornado Cash no longer has miners willing to process its transactions.
Vitalik Buterin was so outraged by the thought that validators might comply with OFAC sanctions after the merger that he stated that any validator complying with the sanctions should have their blocked ETH burned. He agreed with the sentiment that actions that do not include Tornado Cash transactions should be considered “an attack on Ethereum and burn their stake via social consensus.”
When discussing the possibility of proof-of-participation validators ignoring Tornado Cash transactions, Igor Mandrigin, CTO of infrastructure company web3 Gateway.fm, told Cryptonovices,
It is not technically impossible to not offer blocks with TC, to ignore from the transaction pool but the fewer validators under the regulation, the better.
A day after the above conversation, we now see a real-life example of proof-of-work validators ignoring Tornado Cash blocks.
Ethermine is not a U.S.-based company and therefore does not fall under the jurisdiction of OFAC sanctions. However, miners using the Ethermine pool could be located in the United States. If Ethermine operates a block that includes a Tornado Cash transaction, it could be considered to interact with Tornado Cash, thereby violating the sanctions.