Reversing Censorship on Ethereum

Since October 11, the proportion of Ethereum blocks that are compliant with orders made by the United States Office of Foreign Asset Control (OFAC) has decreased to its current level of 47%, which is the lowest level since that date.

The most recent achievement in the fight against censorship comes about two and a half months and one day after the proportion of OFAC-compliant blocks reached its all-time high of 79% on November 21.

OFAC-compliant blocks are ones that do not include any transactions that involve parties who have been blacklisted by the Office of Foreign Assets Control within the United States Treasury Department.

Those individuals who are opposed to censorship inside the Ethereum ecosystem may see a decrease in the number of compliant blocks as a victory.

According to a statement released by the blockchain consulting company Labrys, the originator of MEV Watch, the decline may be linked to more validators choosing to utilize MEV-boost relays that do not filter transactions in compliance with OFAC standards.

The majority of the shift in market share has been taken up by the BloXroute Max Profit relay, the Ultrasound Money relay, and the Agnostic Boost relay in particular.

MEV-boost relays play the role of trustworthy middlemen between block producers and block builders, which paves the way for Ethereum validators to delegate the construction of their blocks to third-party block builders.

The Chief Executive Officer of Labrys, Lachlan Feeney, issued a statement on February 14 in which he expressed his satisfaction with the manner in which the Ethereum community has reacted to the censorship problem ever since it first appeared during the Merge event.

He pointed out that the recent decline of censorship-compliant blocks was especially noteworthy since it was accomplished without the involvement of a user-activated soft fork (UASF). He made the observation that “many individuals” of the Ethereum community had requested the soft fork prior to the Merge in order to resist censorship.

“I am incredibly proud of the Ethereum community for the progress we have made with this issue,” said Feeney, adding: “When we released the MevWatch tool drawing attention to a flaw within Ethereum, the community did not stick its head in the sand but instead rose to the occasion and made significant progress addressing the issue.” “When we released the MevWatch tool drawing attention to a flaw within Ethereum, the community did not stick its head in the sand but instead rose to the occasion and made significant progress

However, as Feeney emphasized, “there is still a great deal more work to be done.”

On August 8, OFAC sanctioned wallet addresses that transact using the Ethereum-based privacy mixing technology Tornado Cash. These wallet addresses are associated with Ether (ETH) and USD Coin (USDC).

On September 16, during the first 24 hours of Ethereum’s new proof-of-stake consensus mechanism, just 9% of blocks were filtered by OFAC.

Nevertheless, this number shot up dramatically over the subsequent two months, reaching its highest point of 79% on November 21.

After then, the proportion of OFAC-compliant blocks stayed anywhere between 68 and 75% until the 29th of January, when it dropped to 66%. Since then, in spite of a few brief increases, it has been consistently going down.


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Bitcoin SegWit adoption lags among major exchanges: Glassnode

SegWit has come a long way since its first appearance during the 2015-2017 blocksize war. However, despite its relative success as a Bitcoin upgrade, crypto exchanges including Binance and Gemini are still not committed to using SegWit addresses for sending Bitcoin (BTC). 

Implemented in 2017, segregated witness (SegWit) is a soft fork upgrade that separates “witness” data from the base transaction. In an “explain like I’m five” kind of way, SegWit allows for a safer and faster Bitcoin, making scaling the network easier.

While most exchanges and individuals were quick to upgrade their infrastructure to take on SegWit, reaching the 50% mark for Bitcoin transactions in 2019, the largest exchange, Binance has been dragging its feet.

Glassnode’s report states that Binance “​​had trivial SegWit adoption rates of only 10% up until the end of 2021.” However, it has finally “made an earnest effort to push SegWit adoption near the end of 2021.” Its adoption rate is currently at 50%, paling in comparison to Coinbase and FTX at 100%.

Altogether, crypto exchanges consume roughly 40% of Bitcoin block space. Crucially, however, Coinbase and Binance make up the lion’s share of block space, responsible for “25% of consumed block space” last month. If leaders such as Binance, or large players such as Gemini fail to fully adopt SegWit, Bitcoin will struggle to reach its true scaling potential.

Tomer Strolight, editor in chief at Swan Bitcoin, illustrates the argument:

“The fee savings provided by SegWit (and also batching and Taproot) will inevitably lead to their near-universal use. These have succeeded already in vastly reducing congestion and lowering fees. Ironically, however, their success to date means that we may have to wait until fees become a problem again to give the late adopters the kick in pants they need to fully switch.”

Glassnode’s report also shares a more accurate measure for reading SegWit adoption, SegWit utilization. When applied to single entities, such as exchanges, it provides a more detailed picture.

Of the 18 major exchanges that Glassnode investigated, one-third are bona fide SegWit supporters at over 90% adoption levels. The second third–including Binance–are taking their best shot at adopting SegWit ranging from 50% to 80%, while the final six are still using Bitcoin addresses beginning with the number 1, rather than SegWit’s 3.

Related: 88% of all BTC transfers are overpaying transaction fees

Here is the graph detailing the exchange SegWit ranking:

It’s unlikely that the laggard exchanges will upgrade to Taproot, the most recent Bitcoin soft fork, any time soon. As Strolight points out, we might have to wait until fees rise before they wake up.