When investor and social media star Eric Wall took the main stage at Ethereum’s marquee conference in Bogota, Colombia Thursday afternoon, he came with a warning.
When he stepped off a half hour later, Skylar Weaver, the conference’s organizer, told the crowd they may look back on Wall’s speech as the most important of the 444 talks at Devcon VI.
Distilling an argument he has made to his 100,000 followers on Twitter over the past two months, Wall said Ethereum is facing an existential crisis in the wake of The Merge, the highly anticipated upgrade implemented last month.
“Some of the core people in Ethereum feel that censorship resistance has basically failed,” Wall told The Defiant in a brief interview after his talk. “I don’t agree with that, I think we’ve got to fight until the entirety of Ethereum gets burned down before we allow this to happen. But not everyone is as idealistic. But I’m trying to galvanize the community.”
In August, the US government sanctioned Tornado Cash, a DeFi protocol used to obscure the flow of cryptocurrencies. Tornado Cash is popular with users seeking privacy on Ethereum but has also been used by cybercriminals seeking to launder stolen crypto.
A wave of censorship followed, with crypto companies proactively blocking transactions to and from Tornado Cash and, in some instances, users who had previously interacted with the sanctioned protocol.
When Ethereum’s distributed team of developers implemented The Merge, it changed the method by which the blockchain reaches consensus on the order and validity of transactions. It cut the energy use of Ethereum by an estimated 99%, eliminating one of its key criticisms.
But it also empowered a new set of middlemen that contribute to the ordering of transactions, chief among them a protocol called Flashbots.
According to data compiled on mevwatch.info, more than half of the blocks produced on Ethereum Friday were censoring transactions to comply with US government sanctions due to the participation of Flashbots and its competitors.
Flashbots announced new technology at Devcon on Friday, which it says will address concerns regarding its censorship of transactions on Ethereum. The code for the software, dubbed “Suave,” will be released in the coming weeks.
Several technological solutions to base-layer censorship have been proposed and should be explored, Wall noted. In the event that they fail, however, the Ethereum community would be left with little recourse other than a “user-activated soft fork,” or USAF, according to Wall.
Such a move would eliminate the stake of censoring entities in Ethereum. The potential cost of such a move is enormous, however, and stands to impact the entities themselves as well as the retail investors on whose behalf the Ether has been staked.
Censorship on the blockchain can take several forms of varying severity, Wall said, and he suggested increasingly severe punishments, culminating in a user-activated soft fork, for entities that censor transactions.
User-Activated Soft Fork
“I recognize that, you know, I’m arbitrarily coming up with rules for slashing [censoring entities’] stake in Ethereum,” he acknowledged on stage. “And this shouldn’t be something that’s arbitrary. This is something that should be a policy that we all agree on.”
Wall also suggested that Ethereum’s most prominent spokespeople, including founder Vitalik Buterin, avoid the debate altogether.
“Imagine Vitalik saying, ‘We’re going to slash this validator, we’re going to slash that validator,’” Wall said. “That would just go back to everyone criticizing us and saying, ‘The overlords of Ethereum decide who gets to keep their stake or not!’”
A user-activated soft fork would, among other things, create two versions of Ethereum – one compliant with government regulations, and one not. With much of the market capitalization of Ethereum tied up in tokens pegged to the US dollar — tokens issued by companies vulnerable to government regulation – the compliant chain could receive a majority of Ethereum’s market capitalization.
“From my perspective, the censored fork doesn’t have any value,” Wall said. “I will go with the rebellion fork as long as I can, and if that fails, then the Ethereum project has failed, and I will go and do something else.”
Ether is down nearly 20% since The Merge was implemented on Sept. 15.