The hope of a decentralized, open, free internet is in jeopardy right now. This is not hyperbole, FUD, or clickbait. Ethermine, the largest Ethereum mining pool, no longer produces blocks containing Tornado Cash transactions. This is likely due to OFAC sanctions and is an example of censorship at the protocol level.

Crypto analyst, Takens Theorem, discovered that Ethermine has stopped processing Tornado Cash transactions and presented the chart below. CryptoSlate reviewed on-chain data and confirmed that Ethermine had not produced a block that included a Tornado Cash transaction during the timeframe shown below.

If censorship resistance isn’t a goal, these networks can be a *whole lot* simpler and more efficient. https://t.co/PbhFKl4Z74

— Matthew Green (@matthew_d_green) August 19, 2022

We have to go back roughly ten days to find a block produced by Ethermine that includes a Tornado Cash transaction. Block 15306892 was created on August 9th 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.

Why does this matter?

Why does this matter? Recently, the U.S., via OFAC, sanctioned the use of Tornado Cash, making it illegal for any U.S. entity to interact with the protocol.

Following this sanction, Circle “blacklisted” USDC on the Ethereum network so that any holder who had interacted with Tornado Cash would no longer be able to interact with the smart contract. This move 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 addresses sanctioned by OFAC.

Aave reportedly restored access to addresses that had been “dusted” with 0.1 ETH by a hacktivist attempting to highlight one of the critical issues with adhering to the sanctions. According to OFAC, any address that interacted with Tornado Cash was now under sanction from the U.S. Thus, when the hacktivist sent 0.1 ETH to several influential people in the crypto space, it showcased that the sanctions could easily be exploited.

While it is arguably good that Aave has restored access to those high-profile people who were targeted, the question remains, “what will happen to users who are targeted by such an attack in future?”

If I don’t like my boss, so I send him 0.1 ETH through Tornado Cash, will he also now be banned from Aave? If so, how will Aave prove that his claim is legitimate? Banned users can still either fork the protocol or interact via CLI, but this is out of the reach of most users.

The choice by Ethermine to stop producing blocks that include Tornado Cash transactions is a step beyond any of the above. Selecting which transactions to process goes against the core principles of the Ethereum blockchain. The network is supposed to be open-source, free, decentralized, and inclusive.

Censorship at a protocol level

While other miners are still processing the transactions at present, 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 at the thought validators may comply with OFAC sanctions after The Merge that he declared any validators complying with the sanctions should have their ETH staked 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-stake validators ignoring Tornado Cash transactions, Igor Mandrigin, CTO of web3 infrastructure company Gateway.fm, told CryptoSlate,

“It is not impossible technically to not propose blocks with TC, ignore from the transaction pool… but the fewer validators are under US regulations, the better ofc.”

Within a day of the above conversation, we now see a real-world 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 the OFAC sanctions. However, miners that use the Ethermine pool could be situated within the U.S. If Ethermine mines a block that includes a Tornado Cash transaction, it could be considered interacting with Tornado Cash, thereby breaking the sanctions.

Initial community reaction

In response to the news, Martin Koppelmann, Co-Founder of Gnosis, disagreed with a comment suggesting “it does not matter.”

I disagree. It does matter. It normalizes that behavior and it thus puts pressure on others to do it as well. In a world where >90% would do it, the step is much smaller to then start ignoring the other <10% blocks.

So – IT MATTERS!

— Martin Köppelmann 🇺🇦 (@koeppelmann) August 20, 2022

Co-Founder of Paradigm, Matt Huang, recently reiterated the importance of the blockchain ecosystem to remain “neutral and resist censorship.”

Crypto networks like Bitcoin and Ethereum are global infrastructure systems akin to telephone networks, the Internet, etc.

It is vital that they remain neutral + resist censorship at the base layer.

Social consensus is as important as legal precedent. We must fight for both.

— Matt Huang (@matthuang) August 19, 2022

Harsh Rajat, Founder of Ethereum Push Notification Service, shared similar concerns telling CryptoSlate,

“Regulations to ban an open source tech is similar to bringing charges against ford for inventing cars. It’s saddening to see that projects that are good are forced to comply with regulations owing to fear of getting targetted or because the regulations are written in such a way. Though, even more tragic is the way someone did a knee jerk reaction and bought in laws that simply can’t be applied to web3. “

Regarding a solution, Rajat stated, “simply put, we need to stop bad actors but not the inventions that help us progress forward.”

No entity within the Ethereum ecosystem should be able to decide what is included in blocks and what is not. While the news is startling, it is not yet a crisis. No other mining pools appear to be following Ethermine’s lead, and Ethereum validators such as Coinbase have categorically stated they will not censor transactions after The Merge.

However, this is a dangerous road to be traveling along. This is not the direction toward a free and fair decentralized internet; it is several steps backward and potentially the path to an even darker future.

The Tornado Cash code itself does nothing illegal and is fully open-sourced. We do not imprison gun manufacturers when they are used against innocent people. The government does not assume blame when a criminal uses cash for an illegal transaction. By the same arguments, the code written by the Tornado Cash team is not responsible for those who launder money through the protocol.

Tornado Cash has legitimate uses and is a privacy tool at its core. In my opinion (Akiba), the authorities should investigate and trace how the money got to Tornado Cash and what it was used for after, as that’s where the illegal activity can be found.

There is a possibility that it is merely a coincidence that no Tornado Cash transactions have been included in Ethermine blocks. However, given it produces around one-third of the network’s hashrate, it is unlikely.

CryptoSlate reached out to Ethermine for comment but has received no response. A moderator on the Discord forum told CryptoSlate that “Ethermine/BitFly is a registered GmbH so they’re beholden to Austrian laws, so the possibility exists that it’s a compliance move. I could not say for certain however and I’ll defer to the admin team.”

Original research and findings by Oluwapelumi Adejumo.

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Inflation has become one of the most pressing global economic issues today. Rising prices have drastically reduced both the overall wealth and the purchasing power of a huge chunk of the developed world.

And while inflation certainly is one of the biggest drivers of economic crisis, a bigger danger looms around the corner — stagflation.

Stagflation and its effect on the market

First coined in 1965, the term stagflation describes an economic cycle with a persistently high inflation rate combined with high unemployment and stagnant demand in a country’s economy. The term was popularized in the 1970s as the U.S. entered into a prolonged oil crisis.

Since the 1970s, stagflation has been a repeating occurrence in the developed world. Many economists and analysts believe that the U.S. is about to enter a period of stagflation in 2022, as inflation and a rising unemployment rate become increasingly hard to tackle.

One of the ways stagflation can be measured is through real rates — interest rates adjusted for inflation. Looking at real rates shows the real yield and real returns on assets, revealing the real direction of the economy.

According to the U.S. Bureau of Labor Statistics, the consumer price index (CPI) recorded an inflation rate of 8.5% in July. The July CPI posted an increase of just 1.3% from its May numbers, prompting many policymakers to dismiss the severity of the current inflation rate.

However, real rates paint a much different picture.

The 10-year U.S. Treasury yield currently stands at 2.8%. With inflation at 8.5%, the real yield on owning U.S. Treasury bills is 5.7%.

As of 2021, the size of the global bond market is estimated to be around $119 trillion. According to the Securities Industry and Financial Markets Association (SIFMA), around $46 trillion of that comes from the U.S. market. All of the fixed-income market SFIMA tracks, which include mortgage-backed securities (MBS), corporate bonds, municipal securities, federal agency securities, asset-backed securities (ABS), and money markets, currently have negative returns when adjusted for inflation.

The S&P 500 index also falls in the same category. The Shiller price-to-earnings (P/E) ratio puts the S&P index in the hugely overvalued category. The ratio shows the S&P index’s inflation-adjusted earnings for the previous 10 years and is used to measure the stock market’s overall performance. The current Shiller P/E ratio of 32.26 is considerably higher than the levels recorded ahead of the financial crisis in 2008 and is on par with the Great Depression in the late 1920s.

The real estate market has also found itself struggling. In 2020, the value of the global real estate market reached $326.5 trillion — a 5% increase from its 2019 value and a record high.

An increasing population that’s fueling a housing shortage was expected to push this number even higher this year. In the U.S., interest rates have been pegged to nearly zero since the 2008 financial crisis, making mortgages cheap and increasing housing sales across the country.

The rise in interest rates we’ve seen since the beginning of the year is set to change this. From January, the National Association of Home Builders (NAHB) housing market index saw its fastest -35 decline in history. The drop recorded in the index was faster than in 2008 when the housing bubble suddenly burst. This is also the longest monthly decline the NAHB index has seen, as August marked its 8th consecutive month of decline for the first time since 2007.

With almost every segment of the market posting declines, we could see a significant number of institutions and asset managers reconsidering their portfolios. Overvalued property, overbought equities, and negative real yield bonds are all heading into a stagflationary period that could last up to several years.

Large institutions, asset managers, and hedge funds could all be forced to make a tough choice — stay in the market, weather the storm, and risk both short and long-term losses, or rebalance their portfolios with diverse assets that have a better chance of growing in a stagflationary market.

Even if just some institutional players decide to take the latter route, we could see an increasing amount of money flowing into Bitcoin (BTC). The crypto industry has seen unprecedented growth in institutional adoption, with assets other than just Bitcoin becoming an integral part of many large investment portfolios.

However, as the largest and most liquid crypto asset, Bitcoin could be the target of the majority of those investments.

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According to a recently published report, the decentralized exchange (dex) Uniswap has blocked roughly 253 cryptocurrency addresses allegedly tied to crimes or government sanctions. The information was discovered by the software developer Banteg who analyzed and saved the shared logs from Uniswap’s server.

30 out of the 253 Blocked Addresses Are ENS Domain Names, Uniswap Labels 7 Types of Risk Factor Categories

On August 19, the software developer and Yearn Finance contributor Banteg published a Twitter thread that claims the dex Uniswap blocks 253 crypto addresses. “Uniswap has provided an unusual level of transparency,” Banteg said in regard to “frontend censoring via TRM Labs.” Uniswap partnered with TRM Labs in mid-April and the firm blacklists crypto addresses that may be associated with sanctions and crypto crimes.

The same month, reports appeared that indicated a few innocent Uniswap users were affected by the TRM Labs-gated front end. At the time, no one was sure about exactly how many crypto addresses were blacklisted by Uniswap’s TRM Labs-gated front end. Banteg says there are 253 addresses and 30 addresses are ENS domain names. The developer also noted that there are seven different types of risk factor categories and two risk levels.

“Both ownership and being a counterparty of a ‘bad’ address are checked and can contribute to blocking,” Banteg wrote. According to Banteg, the data “wasn’t meant to be public” but the developer noted that people could still have an “exclusive look at the very first [TRM Labs] leak, courtesy of Uniswap.”

Smart Contracts and Code Are Defi, Not the Web Platforms That Host Them

The news follows the recent U.S. government ban of Tornado Cash, the ethereum mixing protocol that leverages Coinjoin and ZKsnark technology. After Tornado Cash was banned an open source developer was arrested, Github code was erased, Tornado Cash Github codebase contributors were suspended, and the project’s Discord server was deleted.

However, the non-profit that focuses on policy issues facing crypto assets, Coin Center, believes the U.S. Treasury Department’s Office of Foreign Asset Control (OFAC) “overstepped its legal authority.” Coin Center is researching the legalities of the Tornado Cash ban and plans to “engage” with OFAC to discuss the matter.

While Uniswap has been updating its TRM Labs-gated front end, there’s likely a whole lot more crypto companies and decentralized finance (defi) protocols following the same measures. For instance, on August 8, Banteg revealed that the Centre Consortium, the stablecoin issuer operated by Circle Financial and Coinbase Global, blacklisted 75,000 USDC that belonged to Tornado Cash users.

“I think this is the first case when a pool has been frozen and not an individual account,” Banteg said at the time.

The issues surrounding Tornado Cash and the precautions taken by defi teams like Uniswap, expose the underlying weakness in so-called ‘decentralized finance’ protocols and whether or not they truly are decentralized.

Even before Tornado Cash was banned by the U.S. government, Tornado Cash developers blacklisted an OFAC-listed ethereum address using a Chainalysis oracle contract. Moreover, in July 2021, users criticized Uniswap for blocking over 100 tokens from the main interface.

During both these instances, crypto users discussed how they could simply leverage Tornado Cash code or Uniswap’s smart contracts and mirror sites to bypass these types of restrictions. The fact is that Uniswap is a company registered in the U.S. and the frontend, or website, is owned by the U.S. entity. In time, people may want to clarify that defi web portals are not decentralized, and the only things that could be classified as such would be the smart contracts and code.

What do you think about the dex Uniswap blocking 253 crypto addresses? Let us know what you think about this subject in the comments section below.

Jamie Redman

Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 5,700 articles for Bitcoin.com News about the disruptive protocols emerging today.

Image Credits: Shutterstock, Pixabay, Wiki Commons

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Following three consecutive days of declines, shiba inu rebounded on Saturday, as the meme coin appears to have found a support point. Cosmos was also higher, in what has mostly been a bearish start to the weekend. As of writing, the global crypto market cap is down 1.31%.

Shiba Inu (SHIB)

Shiba inu (SHIB) was back in the green on Saturday, as the token rallied following three straight days of declines.

The world’s twelfth-largest cryptocurrency rose to an intraday peak of $0.00001397 to start the weekend.

This came less than a day after prices of the meme coin were at a low of $0.00001270, which was below a key support point.

Looking at the chart, this price floor was the $0.00001290 mark, however bulls resisted any further declines, pushing SHIB/USD back into the $0.00001300 region.

As of writing, the 14-day relative strength index (RSI) is tracking at 52.13, which is marginally above a floor of 51.44.

Should the index continue to climb, and move towards a ceiling of 58, then we may see SHIB move closer to $0.00001500.

Cosmos (ATOM)

Cosmos (ATOM) was also trading slightly higher to start the weekend, as it too recovered from a recent losing streak.

Saturday saw ATOM/USD race to a high of $11.02, which is over $1.00 higher than yesterday’s bottom below $10.20.

Yesterday’s bearish pressure was not enough to send ATOM below $10.00, with bulls returning to the market, after a brief move below a key support point.

The floor at $10.65 was marginally broken on Friday, however sentiment has since shifted, with some now anticipating a move nearer to a ceiling of $11.55.

As with SHIB, should ATOM bulls want to extend today’s rally, the RSI will need to significantly rise.

Currently the index is tracking at a floor of 48.05, however it would need to move towards a ceiling of 53 for prices to reach the potential target.

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Do you expect cosmos to hit $11.55 this weekend? Let us know your thoughts in the comments.

Eliman Dambell

Eliman brings a eclectic point of view to market analysis, having worked as a brokerage director, retail trading educator, and market commentator in Crypto, Stocks and FX.

Image Credits: Shutterstock, Pixabay, Wiki Commons

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This week’s sell-off in cryptocurrency markets worsened on Saturday, with bitcoin falling below $21,000 for the first time in nearly a month. Ethereum also continued its descent in today’s session, as the price of the token dropped under the $1,700 level to start the weekend.

Bitcoin

Bitcoin (BTC) continued to reside in the red to start the weekend, as prices of the world’s largest cryptocurrency fell below $22,000.

Saturday saw BTC/USD fall to an intraday low of $20,868.85, with the token edging closer to a key support level.

This floor has been at the $20,800 point, which was last hit on July 16, when prices were trading below $20,500.

As a result of these declines, the 14-day relative strength index (RSI) dropped to a low of 32.97, which is its lowest point since July 12.

Bitcoin prices have since rebounded, and as of writing are back above $21,000. BTC is currently trading at $21,191.27.

Taking a closer look at the chart, it can be seen that the 10-day (red) moving average (MA), is nearing a downward cross with the 25-day (blue) MA.

Should this trend continue, this could signal further declines, with BTC likely falling below $20,000.

Ethereum

After a strong start to the week, ethereum (ETH) has begun the weekend trading over $400 away from Monday’s peak above $2,000.

ETH/USD, which dropped to a bottom of $1,695.15 on Friday, fell even lower in today’s session, hitting a low of $1,611.34.

This is the lowest level ethereum has traded at in the last sixteen days, after falling below the $1,600 level on August 4.

Honing in on the chart, it appears as if ETH bears are attempting to take prices towards a support point of $1,565.

However, bulls have so far resisted this possibility, pushing back from earlier lows, with the token currently trading at $1,636.11.

The rebound came as the RSI hit a floor of 43.00, and as of writing RSI is tracking at 44.90. Should this head back towards 50, we may see the token rise back above $1,700.

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Do you expect ethereum to climb back above $1,700 this weekend? Leave your thoughts in the comments below.

Eliman Dambell

Eliman brings a eclectic point of view to market analysis, having worked as a brokerage director, retail trading educator, and market commentator in Crypto, Stocks and FX.

Image Credits: Shutterstock, Pixabay, Wiki Commons

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