Nic Carter: If Ethereum Slashes It Will Burn

Columnist and Castle Island Ventures partner Nic Carter has a spicy column at CoinDesk arguing that if Ethereum starts slashing “bad actors” in the wake of the Tornado Cash sanctions, it would make it as politicized as fiat currency.

We’ve written about the injustice of Treasury’s actions against the coin mixer and the problems of attempts at crypto censorship, but Cramer takes it a step further with the problem of platforms are imposing address screening at their interfaces. It’s a long but compelling article, but here’s the core of it.

The blockchain itself isn’t affected: Users can run nodes and use alternative interfaces (to the extent they exist) to access these applications. But running nodes is hard, and switching from front end to front end is risky and difficult.

These Web3 censorship tactics are not unlike the deep deplatforming that happens on the internet to designated opponents of the regime. Deplatformed with suspicious synchrony from Facebook, AWS, Cloudflare, Salesforce, and PayPal? Just build your own social media, hosting, distributed denial of service (DDoS) protection, customer relationship management (CRM) and … bank.

The government didn’t call it Operation Choke Point for nothing. In practice, you just have to make it very inconvenient for users to access the service in question, and you have kicked them off. If they have to run their own beefy Ethereum node and use the command line to interact with an uncensored Aave or Oasis, the vast majority of users will be de facto walled out of the service.

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Now a curious discourse has emerged whereby Ethereans are threatening to sanction slash validators like Coinbase (COIN) if it complies with the law and filters sanctioned transactions, as the firm surely will. (Brian Armstrong can posture all he likes, but the Board won’t allow him to shut down Coinbase’s massively lucrative staking business because some .eths were mean to him online – they would sooner fire him.) Eric Wall has described the credible threat of slashing “a prerequisite for security and censorship resistance in a blockchain.”

Notable among Ethereum elites supporting the slashing of Evil Coinbase is Vitalik Buterin himself. No surprise that Buterin has signed on to the crusade, as it is he who is largely responsible for promoting the concept in his early defenses of proof-of-stake (PoS). “We will slash the bad people” is so elegant in theory. The drone pilots only intended to drop the precision munitions on the insurgents, and never the wedding guests.

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So Ethereum’s reaction to nation-state sanctions would be to impose sanctions of its own. It’s an identical desire to the one that drives the U.S. government to sanction so aggressively: to use purportedly surgical financial weapons to fight enemies, foreign and domestic, without firing a shot.

But Ethereum leadership must rise above this urge, which would make the network no better than the system it seeks to replace. One of the distinct advantages public blockchains have over their legacy counterparts is their genuine neutrality. To impose a slashing rule – in such an arbitrary and slapdash manner, with no prior codification – would undo that advantage completely.

This may be one case where the solution they are proposing is worse than the problem itself, with Ethereum becoming a wholesale agent of censorship, rather than ensuring its neutrality. If nothing else it underscores why regulator attempts at censorship can create a virtual cascade failure, and why the industry must smartly resist these efforts.