Crypto is resistant to censorship because no individual or organization can reverse a crypto transaction or blacklist a wallet or address. For a blockchain or cryptocurrency to succeed, it must be able to function without being censored. Since the introduction of bitcoin, censorship-resistant has been an essential part of the crypto community and a driving force behind the whole industry.
This implies that nobody—not the state, not your snooping neighbor—should be able to stop a transaction from going through on the Blockchain network, provided that you fulfill the predefined technical criteria to generate a valid transaction. Censorship resistance is a jargon term for actions that can’t be vetoed or stopped.
However, people like the billionaire CEO of FTX, Sam Bankman-Fried, believed otherwise when he stirred up controversy in his piece on crypto regulation last week. In the article, Bankman-Fried discussed implementing blocklists – a list of wallets addresses banned from interacting with a blockchain because they’re suspected of being used for illicit purposes – and respecting the U.S. Office of Foreign Assets Control’s (OFAC) sanctions lists by keeping “an on-chain list of the sanctioned addresses… maintained by either OFAC or by a responsible actor.”
Bankman-Fried is not alone in pushing this narrative; Jamie Dimon, the JPMorgan Chase CEO, used to play this game too.
The problem is making crypto censorship complaints defeats its very purpose of decentralization and value proposition. Crypto prides itself in banking the unbanked globally, providing open access to financial instruments, and empowering otherwise disempowered individuals.
There is no value in replacing the same financial system which generated these issues in the first place with a new, shiny crypto shell that embraces censorship. Yet, even while SBF discusses how things should develop in the future, censorship resistance is being eroded. Look at the Ethereum Merge, where over half of the blocks were recently processed under OFAC compliance requirements within 24 hours.
Despite the abundance of skeptics who argue that crypto is a massive pyramid scheme, we’ve seen enough anecdotal and empirical evidence to support the notion that crypto is genuinely valued and helpful. However, I feel that censorship resistance is one of the primary reasons why Bitcoin is valued and beneficial.
But SBF does provide a crucial caveat to his proposal, stating that “all commerce breaks down if you require a[n] allowlist to transact.” Totally without a doubt, this is correct. Picture yourself in a world where you need identification at every store.
On the surface, this indicates that good people should be permitted to transact freely while bad ones should not; thus, it’s not surprising that many would agree. The trouble is that aside from blatantly evil acts (such as cold-blooded murder), the standards for what constitutes right and wrong change depending on who is in charge.
As a result, the item left after censorship resistance is stripped from crypto is not that exciting. Without a more elegant expression of this point of view, I will cite a tweet by Bennett Tomlin of Protos and the “Crypto Critics’ Corner” podcast, who put it succinctly: “If crypto lacks censorship-resistance, then it is just gambling and schemes.”
I believe this is a realistic and precise description of crypto without censorship resistance. Despite the possibility that there is still money to be earned in the casino-like, rug-pulling-filled extremities of the bitcoin world, I doubt that investors would be eager to advocate this value proposition.
We must, however, take this at least one step further. Similarly, censorship resistance without privacy is irrelevant. And this has been a problem with transparent networks like Bitcoin (which is crucially not anonymous; Bitcoin keeps a public log of transactions that includes identifying addresses and balances). It is the exact opposite of anonymity, particularly if you are new to utilizing the Internet.
This occurred in February 2022 when Canadian truckers challenged a vaccination mandate. While demonstrators were able to receive payments via Bitcoin, Ethereum, and other networks, the openness of these blockchains made it nearly difficult for them to withdraw the monies for fear that the Canadian government would freeze or suspend their bank accounts.
Therefore, it is true that someone can send me bitcoin (BTC), notwithstanding the government’s desire for me not to accept it. Because the Bitcoin network is impervious to censorship. However, if the government can track the transaction and determine that the bitcoin flowed from you to me, it might take action because I did receive payments from you outside the Bitcoin network.