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No mention of sanctions? It's estimated that ~50% of staked value is held by US companies. These companies are going to have to make an impossible choice. Eith

No mention of sanctions? It's estimated that ~50% of staked value is held by US companies. These companies are going to have to make an impossible choice. Either: 1. Sign transactions coming from the sanctioned addresses, inviting the wrath of OFAC. or: 2. Refuse to sign these transactions. 2a. If between 33% and 66% of the network refuses, the network will penalize dissenters by slashing their staked coins, until they no longer have a 33% stake. Billions of dollars of customer funds could be lost. 2b. If > 67% of the network refuses, transactions can be successfully censored. Now we no longer have decentralized ETH, we have "USA coin", where the government can censor anyone with a quick email to Brian Armstrong. I don't see a way out. It doesn't look like the network is actually decentralized enough to handle a nation-state attack. This was not an issue with the old proof of work scheme. I'll be amazed if the merge is not delayed while they work on a solution to this. EDIT: If Coinbase does lose that money, you could say the network is operating as designed in the presence of a hostile validator. But a LOT of people are not going to be happy with the result.

kranke155 4y ago
“The idea of apolitical money is a fantasy” Yannis Varoufakis, London, circa 2017 Either crypto follows the law or it gets banned. IMO this was inevitable.
- silentsea90 4y ago
  You present a problem with Proof of Stake as an inevitable run in with the law and/or some folly of the crypto community. That's not very sound logic. I personally believe in apolitical decentralized money winning against fiat which is governed on the whims of central bankers and crony capitalism. Every system where technology brings fairness, power to all, and hard rules wins. This will not be an exception. It is the separation of money and state, not very dissimilar from church and state, monarchy and nationhood etc.
  - HelloNurse 4y ago
    What "hard rules" can compete with actually enforced law? Don't you expect more "whims" (and scams) from private adventurers than from governments?
    - silentsea90 4y ago
      I expect all parties to act in their own best interests. I do in fact expect more scams from private bodies, but the government conducts a much larger scam in printing without accountability a currency unbacked by anything and not bound to any rules, a billion ton gorilla that moves the "free" markets at it's whim. The people's interest imo is in fairness to all not asset owners who aren't as affected by money printing etc The law isn't sacrosanct, but of course it needs to be followed. It is malleable and comes from lawmakers who may or may not represent the interest of the people, unwittingly or otherwise
      - deleted 4y ago
        [deleted]
  - manigandham 4y ago
    Crypto itself can cross borders as a intangible virtual entity. You cannot. Your physicality means you're bounded by geographical borders to a nation state and thus its laws and regulations.
    - nostrademons 4y ago
      That assumes that people are the entities that the economy optimizes for, which hasn't been true for 10,000 years or so. People are disposable to capitalism - there are 7.7 billion of us, which makes individual humans about as significant to the economy as individual neurons are to consciousness. As long as there exist some humans that are in a position to do the crypto-economy's bidding, it'll happen, and it doesn't matter if some of them are thrown in prison or executed or die from poor government policies. From the perspective of world history, this is a BFD. The monetary system of the past 80 years has been controlled by the ruling class of a ~150-300M person nation. The crypto economy imposes uniform rules on ~3B people, which is an order of magnitude greater complexity, and should see further specialization and gains from trade for those that participate in it.
  - RandomLensman 4y ago
    It's fine to want a different society/policies, but you need to expand on how that new society should look like then: How would sanctions work, for example? Or if there are none, will there be other means of defense/offense? Who would set the rules of the monetary system and what would give legitimacy to those rule setters? How to move from the old system to the new without (too much) disruption? ... The endings of proper monarchies weren't always simple and nice events - if that is the magnitude of change you have in mind.
    - silentsea90 4y ago
      Sanctions don't stem from the existence of Fiat currency (at least directly), and may still exist depending on power dynamics. The move is on the way and will continue. It will be disruptive but I'm not sure exactly how it'll go. Regular military offense and defense systems will exist but just not ones where the US say prints infinite money for war and incurs sovereign debt. Wars might be a lot smaller scale then. Old world wars required rulers to raise money, taxation etc. They didn't print out of thin air, or bankrupt entire nations (eg Weimar Germany) Non Fiat money has been the norm pre unpegged Fiat. It's been around for 2-3k years at least, whereas unpegged Fiat is 50 years old. I'm surprised we find the fall of Fiat as hard to imagine:)
      - RandomLensman 4y ago
        How is crypto not another fiat? It is not backed by convertability into a commodity either. It's (currently typically) not issued by a state actor but otherwise just like a typical fiat currency brought into being by something akin to a (community) decree. I know from the US perspective often legal tender concepts are brought into the definition of fiat but the legal tender concept doesn't quite exist in the same way in a lot of other countries.
        silentsea90 4y ago
        It's true that it's not backed, and that's a pro (we'll get to that), but Bitcoin is better than Fiat for many reasons: 1) impossible to confiscate 2) fixed supply and issuance rate - can't just print it away when the fed wants 3) instant permissionless transfer so the government can't interject. If you think they can be trusted, might want to read about executive order 6102 4) not backed by another asset eg gold (say). This is great because gold is extremely hard to transfer physically and easy to confiscate. Read about how Nixon refused to allow dollar convertibility for gold for foreign nations which was the condition for Bretton woods agreement ie where all nations agreed to use dollar as a global reserve freely exchangeable for gold. Also read about how FDR outlawed private ownership of gold when the US had printed more money than their gold reserves and needed to fix their books. Decentralized community decree is awesome. You don't have a central actor making rules that support themselves. Christine Lagarde has no way to get the euro out of the deficit hole. See this snippet from an interview: https://youtu.be/p-X-mIuDYFw https://youtu.be/p-X-mIuDYFw. In a balanced system, the debt would be loaned from and owed to a market participant who cares about their money being returned, not this bizarre broken system where central banks print and then owe to themselves
  - arlcode 4y ago
    The power of law comes from the ability, to confiscate things, kick in doors and arrest people. Usually there is some social consensus such that most comply anyway most of the time. This is true and always and trumps whatever your software says is meaningless if there is any conflict ("you and what army" is a very valid question. Now, the law (a court) can of course allow your software and might even enforce a contract bases on your software In good systems the governed people have a say in how those laws are created. In Bad ones it's literally whatever one person mutters with a mouth full of breakfast cereals and headaches.
    - silentsea90 4y ago
      I don't question the law's ability to do this, but believe that the ideal human societal state is one where money isn't controlled by centralized actors, and that the law would change in time to comply with what's best for society. This will happen sooner in functioning states and later in bad ones.
scyclow 4y ago
Re 2b: While the scenario you're outlining certainly isn't ideal, I don't think it's fair to say that the transactions are "censored". All they can do is not validate blocks with this transactions in them. It's only a matter of time though before a block is validated by someone not under the purview by OFAC.
- deleted 4y ago
  [deleted]
- TakeBlaster16 4y ago
  All blocks are voted on by the validators. If 67% of the network is censoring transactions, someone else could not just pop in and validate a block, because they would not have 67% of the votes.
jrsj 4y ago
This isn't a bug, it's a feature. It's also something Bitcoin maximalists have been warning about for a long time.
- tradertef 4y ago
  I think you meant to say it is not a feature, it is a bug.
  - jrsj 4y ago
    No, I didn't. This is an inherent part of adopting Proof of Stake that anyone paying attention would have been able to predict. The only reasonable possibility is that it's being done intentionally.
randomran01234 4y ago
> This was not an issue with the old proof of work scheme. Censorship of transactions because of OFAC is already happening in PoW mining. https://twitter.com/takenstheorem/status/1560690035955011585?s=20&t=it32AoXe77oebG_WnBfbxA https://twitter.com/takenstheorem/status/1560690035955011585...
- globalreset 4y ago
  Except in in PoW it only means delayed transactions, because only one miner has to "sign off" the block - everyone else accept it passively. A single miner, even with 0.1% mining power is enough to keep the network censorship resistant. In PoS majority of validators has to actively approve a block containing "illegal" transactions, leading to permanent censorship. The exact interpretation of validation vs mining responsibility in face of law and passive vs active is fuzzy , but it leaves miners is better legal position.
  - 0x64 4y ago
    You are wrong about the majority of validators having to approve a certain transaction for them to be included. Even if 80 % of the network were censoring, those transactions would, on average, make it into every fifth block.
    - randomran01234 4y ago
      Can you point to any sources? I would like to read about how this will be accepted even if the majority is against inclusion.
      - 0x64 4y ago
        Because not attesting is against the network's fork-choice rules. If that censoring majority chooses to avoid said block, because it contains transactions that should be censored, they will perform an illegal re-org around the block. Sure, it won't be "illegal" as a majority of the network follows said re-org. It's an extremely nuanced topic, and it was extensively discussed in the last core-developer call on Thursday. Every single operator has been warned that going against the fork-choice rules could, and ultimately will, result in social mitigations against spec-deviating behavior. This could be set of socially executed slashings of validators that don't respect the fork-choice rules, or an honest-minority executed hard-fork that effectively causes misbehaving validators to bleed until they start respecting the protocol's rules. I could be wrong on multiple counts, especially regarding re-orgs, but this is how I've understood the issue.
RichardCNormos 4y ago
In the US, it would end up in court. It directly pits fiduciary duty against OFAC. For example, if a US-based CEX that operates in New York has a slashing event, that brings regulatory consequences from NYDFS, regardless of the reason for the slashing.
- kortilla 4y ago
  Not really. You can’t have a fiduciary duty to break the law. The downside risk is much higher to violate OFAC.
flotzam 4y ago
> 2b. If > 67% of the network refuses, transactions can be successfully censored. Similar with PoW. For both PoW and PoS, the proper response is to socially coordinate forking out the censoring block producer majority (like with the Bitcoin UASF that was threatened over much less egregious miner misbehavior). PoS improves on PoW here in two ways: 1. Non-censoring PoS block producers can have a tiny meatspace presence compared to PoW mining operations, which makes it easier to physically evade pro-censorship forces 2. It's more effective to coordinate a direct confiscation of the censoring PoS block producers' on-chain capital investment, compared to making miners' equipment partially obsolete by coordinating an ad-hoc redesign of the PoW algorithm https://nitter.net/dystopiabreaker/status/1560715986424147968 https://nitter.net/dystopiabreaker/status/156071598642414796...
- tromp 4y ago
  With PoW, even if a majority of hashpower refuses to include a particular transaction in their mempool (and hence in blocks they mine), that transaction can be mined by some minority miner. It's only when the majority is colluding to reorg the chain that the transaction can be censored.
  - flotzam 4y ago
    > It's only when the majority is colluding to reorg the chain that the transaction can be censored. I'm assuming (like in the last tweets of the linked thread) that pro-censorship forces who can arrange for the supermajority in PoS to censor transactions can also arrange for the majority in PoW to not build on any uncensored head of the chain, i.e. they can mandate "always reorg."
  - pa7x1 4y ago
    This is true also in PoS. If 90% of the validators censor a transaction, i.e. Do not include them in their blocks, the censored transactions would take 10x longer to be included but they would be included eventually.
- syntheweave 4y ago
  "Socially coordinating" is how fiat works. It should only be a bootstrapping mechanism towards trustless behaviors, not the mechanism to cancel each other on-chain.
etaioinshrdlu 4y ago
Where is the evidence that a validator signing transactions invites the wrath if OFAC?
- rufusroflpunch 4y ago
  Do you really think they wouldn’t turn they screw when the time came?
  - etaioinshrdlu 4y ago
    They might, but speculating on what the Gov might do is tough. I was very convinced that Bitcoin and all derivatives would be outright illegal just a few years after they went mainstream, and that has definitely not happened. In a sense every self-hosted bitcoin wallet could be seen as violating payments laws.
    - Ruphin 4y ago
      Making it illegal to have Bitcoin is not very easy. What you call a "self-hosted bitcoin wallet" is just knowing some combination of bits that happens to be the private key that gives you the ability to sign transactions for some Bitcoin. How do you make it illegal to know something? What if I tell you my private key, does that mean you are then suddenly violating payments laws? What if you stumble upon it by accident? Technically any string of 32 bytes is a valid private key that can hold Bitcoin. There just might not be any Bitcoin in the address associated with it at this time. What if I "know" a random string of 32 bytes, am I then suddenly in violation of laws when someone randomly deposits Bitcoin to the corresponding address? The legal difficulty is that the action of having or holding Bitcoin (or mostly any cryptocurrency) is something that has no physical representation and is purely information based. Mining or making transactions is a different story altogether. These require, amongst other things, that you send specific digital information across the internet which is certainly something that can be made illegal.
zionic 4y ago
This is in fact already a problem with PoW and is happening right now. AFAIK ether mine stopped including TC transactions in their blocks.
aboodman 4y ago
I guess another potential option is that companies that stake large amounts of ETH don't exist in the US?
Ekaros 4y ago
Game theory wise wouldn't it make sense for the 33% to try to get to 34% as that will lower the other players stakes thus increase their profits? So either lose your stake or incur possible legal action?

kranke155 4y ago

“The idea of apolitical money is a fantasy” Yannis Varoufakis, London, circa 2017 Either crypto follows the law or it gets banned. IMO this was inevitable.

silentsea90 4y ago
You present a problem with Proof of Stake as an inevitable run in with the law and/or some folly of the crypto community. That's not very sound logic. I personally believe in apolitical decentralized money winning against fiat which is governed on the whims of central bankers and crony capitalism. Every system where technology brings fairness, power to all, and hard rules wins. This will not be an exception. It is the separation of money and state, not very dissimilar from church and state, monarchy and nationhood etc.
- HelloNurse 4y ago
  What "hard rules" can compete with actually enforced law? Don't you expect more "whims" (and scams) from private adventurers than from governments?
  - silentsea90 4y ago
    I expect all parties to act in their own best interests. I do in fact expect more scams from private bodies, but the government conducts a much larger scam in printing without accountability a currency unbacked by anything and not bound to any rules, a billion ton gorilla that moves the "free" markets at it's whim. The people's interest imo is in fairness to all not asset owners who aren't as affected by money printing etc The law isn't sacrosanct, but of course it needs to be followed. It is malleable and comes from lawmakers who may or may not represent the interest of the people, unwittingly or otherwise
    - deleted 4y ago
      [deleted]
- manigandham 4y ago
  Crypto itself can cross borders as a intangible virtual entity. You cannot. Your physicality means you're bounded by geographical borders to a nation state and thus its laws and regulations.
  - nostrademons 4y ago
    That assumes that people are the entities that the economy optimizes for, which hasn't been true for 10,000 years or so. People are disposable to capitalism - there are 7.7 billion of us, which makes individual humans about as significant to the economy as individual neurons are to consciousness. As long as there exist some humans that are in a position to do the crypto-economy's bidding, it'll happen, and it doesn't matter if some of them are thrown in prison or executed or die from poor government policies. From the perspective of world history, this is a BFD. The monetary system of the past 80 years has been controlled by the ruling class of a ~150-300M person nation. The crypto economy imposes uniform rules on ~3B people, which is an order of magnitude greater complexity, and should see further specialization and gains from trade for those that participate in it.
- RandomLensman 4y ago
  It's fine to want a different society/policies, but you need to expand on how that new society should look like then: How would sanctions work, for example? Or if there are none, will there be other means of defense/offense? Who would set the rules of the monetary system and what would give legitimacy to those rule setters? How to move from the old system to the new without (too much) disruption? ... The endings of proper monarchies weren't always simple and nice events - if that is the magnitude of change you have in mind.
  - silentsea90 4y ago
    Sanctions don't stem from the existence of Fiat currency (at least directly), and may still exist depending on power dynamics. The move is on the way and will continue. It will be disruptive but I'm not sure exactly how it'll go. Regular military offense and defense systems will exist but just not ones where the US say prints infinite money for war and incurs sovereign debt. Wars might be a lot smaller scale then. Old world wars required rulers to raise money, taxation etc. They didn't print out of thin air, or bankrupt entire nations (eg Weimar Germany) Non Fiat money has been the norm pre unpegged Fiat. It's been around for 2-3k years at least, whereas unpegged Fiat is 50 years old. I'm surprised we find the fall of Fiat as hard to imagine:)
    - RandomLensman 4y ago
      How is crypto not another fiat? It is not backed by convertability into a commodity either. It's (currently typically) not issued by a state actor but otherwise just like a typical fiat currency brought into being by something akin to a (community) decree. I know from the US perspective often legal tender concepts are brought into the definition of fiat but the legal tender concept doesn't quite exist in the same way in a lot of other countries.
      - silentsea90 4y ago
        It's true that it's not backed, and that's a pro (we'll get to that), but Bitcoin is better than Fiat for many reasons: 1) impossible to confiscate 2) fixed supply and issuance rate - can't just print it away when the fed wants 3) instant permissionless transfer so the government can't interject. If you think they can be trusted, might want to read about executive order 6102 4) not backed by another asset eg gold (say). This is great because gold is extremely hard to transfer physically and easy to confiscate. Read about how Nixon refused to allow dollar convertibility for gold for foreign nations which was the condition for Bretton woods agreement ie where all nations agreed to use dollar as a global reserve freely exchangeable for gold. Also read about how FDR outlawed private ownership of gold when the US had printed more money than their gold reserves and needed to fix their books. Decentralized community decree is awesome. You don't have a central actor making rules that support themselves. Christine Lagarde has no way to get the euro out of the deficit hole. See this snippet from an interview: https://youtu.be/p-X-mIuDYFw https://youtu.be/p-X-mIuDYFw. In a balanced system, the debt would be loaned from and owed to a market participant who cares about their money being returned, not this bizarre broken system where central banks print and then owe to themselves
- arlcode 4y ago
  The power of law comes from the ability, to confiscate things, kick in doors and arrest people. Usually there is some social consensus such that most comply anyway most of the time. This is true and always and trumps whatever your software says is meaningless if there is any conflict ("you and what army" is a very valid question. Now, the law (a court) can of course allow your software and might even enforce a contract bases on your software In good systems the governed people have a say in how those laws are created. In Bad ones it's literally whatever one person mutters with a mouth full of breakfast cereals and headaches.
  - silentsea90 4y ago
    I don't question the law's ability to do this, but believe that the ideal human societal state is one where money isn't controlled by centralized actors, and that the law would change in time to comply with what's best for society. This will happen sooner in functioning states and later in bad ones.

scyclow 4y ago

Re 2b: While the scenario you're outlining certainly isn't ideal, I don't think it's fair to say that the transactions are "censored". All they can do is not validate blocks with this transactions in them. It's only a matter of time though before a block is validated by someone not under the purview by OFAC.

deleted 4y ago
[deleted]
TakeBlaster16 4y ago
All blocks are voted on by the validators. If 67% of the network is censoring transactions, someone else could not just pop in and validate a block, because they would not have 67% of the votes.

jrsj 4y ago

This isn't a bug, it's a feature. It's also something Bitcoin maximalists have been warning about for a long time.

tradertef 4y ago
I think you meant to say it is not a feature, it is a bug.
- jrsj 4y ago
  No, I didn't. This is an inherent part of adopting Proof of Stake that anyone paying attention would have been able to predict. The only reasonable possibility is that it's being done intentionally.

randomran01234 4y ago

> This was not an issue with the old proof of work scheme. Censorship of transactions because of OFAC is already happening in PoW mining. https://twitter.com/takenstheorem/status/1560690035955011585?s=20&t=it32AoXe77oebG_WnBfbxA https://twitter.com/takenstheorem/status/1560690035955011585...

globalreset 4y ago
Except in in PoW it only means delayed transactions, because only one miner has to "sign off" the block - everyone else accept it passively. A single miner, even with 0.1% mining power is enough to keep the network censorship resistant. In PoS majority of validators has to actively approve a block containing "illegal" transactions, leading to permanent censorship. The exact interpretation of validation vs mining responsibility in face of law and passive vs active is fuzzy , but it leaves miners is better legal position.
- 0x64 4y ago
  You are wrong about the majority of validators having to approve a certain transaction for them to be included. Even if 80 % of the network were censoring, those transactions would, on average, make it into every fifth block.
  - randomran01234 4y ago
    Can you point to any sources? I would like to read about how this will be accepted even if the majority is against inclusion.
    - 0x64 4y ago
      Because not attesting is against the network's fork-choice rules. If that censoring majority chooses to avoid said block, because it contains transactions that should be censored, they will perform an illegal re-org around the block. Sure, it won't be "illegal" as a majority of the network follows said re-org. It's an extremely nuanced topic, and it was extensively discussed in the last core-developer call on Thursday. Every single operator has been warned that going against the fork-choice rules could, and ultimately will, result in social mitigations against spec-deviating behavior. This could be set of socially executed slashings of validators that don't respect the fork-choice rules, or an honest-minority executed hard-fork that effectively causes misbehaving validators to bleed until they start respecting the protocol's rules. I could be wrong on multiple counts, especially regarding re-orgs, but this is how I've understood the issue.

RichardCNormos 4y ago

In the US, it would end up in court. It directly pits fiduciary duty against OFAC. For example, if a US-based CEX that operates in New York has a slashing event, that brings regulatory consequences from NYDFS, regardless of the reason for the slashing.

kortilla 4y ago
Not really. You can’t have a fiduciary duty to break the law. The downside risk is much higher to violate OFAC.

flotzam 4y ago

> 2b. If > 67% of the network refuses, transactions can be successfully censored. Similar with PoW. For both PoW and PoS, the proper response is to socially coordinate forking out the censoring block producer majority (like with the Bitcoin UASF that was threatened over much less egregious miner misbehavior). PoS improves on PoW here in two ways: 1. Non-censoring PoS block producers can have a tiny meatspace presence compared to PoW mining operations, which makes it easier to physically evade pro-censorship forces 2. It's more effective to coordinate a direct confiscation of the censoring PoS block producers' on-chain capital investment, compared to making miners' equipment partially obsolete by coordinating an ad-hoc redesign of the PoW algorithm https://nitter.net/dystopiabreaker/status/1560715986424147968 https://nitter.net/dystopiabreaker/status/156071598642414796...

tromp 4y ago
With PoW, even if a majority of hashpower refuses to include a particular transaction in their mempool (and hence in blocks they mine), that transaction can be mined by some minority miner. It's only when the majority is colluding to reorg the chain that the transaction can be censored.
- flotzam 4y ago
  > It's only when the majority is colluding to reorg the chain that the transaction can be censored. I'm assuming (like in the last tweets of the linked thread) that pro-censorship forces who can arrange for the supermajority in PoS to censor transactions can also arrange for the majority in PoW to not build on any uncensored head of the chain, i.e. they can mandate "always reorg."
- pa7x1 4y ago
  This is true also in PoS. If 90% of the validators censor a transaction, i.e. Do not include them in their blocks, the censored transactions would take 10x longer to be included but they would be included eventually.
syntheweave 4y ago
"Socially coordinating" is how fiat works. It should only be a bootstrapping mechanism towards trustless behaviors, not the mechanism to cancel each other on-chain.

etaioinshrdlu 4y ago

Where is the evidence that a validator signing transactions invites the wrath if OFAC?

rufusroflpunch 4y ago
Do you really think they wouldn’t turn they screw when the time came?
- etaioinshrdlu 4y ago
  They might, but speculating on what the Gov might do is tough. I was very convinced that Bitcoin and all derivatives would be outright illegal just a few years after they went mainstream, and that has definitely not happened. In a sense every self-hosted bitcoin wallet could be seen as violating payments laws.
  - Ruphin 4y ago
    Making it illegal to have Bitcoin is not very easy. What you call a "self-hosted bitcoin wallet" is just knowing some combination of bits that happens to be the private key that gives you the ability to sign transactions for some Bitcoin. How do you make it illegal to know something? What if I tell you my private key, does that mean you are then suddenly violating payments laws? What if you stumble upon it by accident? Technically any string of 32 bytes is a valid private key that can hold Bitcoin. There just might not be any Bitcoin in the address associated with it at this time. What if I "know" a random string of 32 bytes, am I then suddenly in violation of laws when someone randomly deposits Bitcoin to the corresponding address? The legal difficulty is that the action of having or holding Bitcoin (or mostly any cryptocurrency) is something that has no physical representation and is purely information based. Mining or making transactions is a different story altogether. These require, amongst other things, that you send specific digital information across the internet which is certainly something that can be made illegal.

zionic 4y ago

This is in fact already a problem with PoW and is happening right now. AFAIK ether mine stopped including TC transactions in their blocks.

aboodman 4y ago

I guess another potential option is that companies that stake large amounts of ETH don't exist in the US?

Ekaros 4y ago

Game theory wise wouldn't it make sense for the 33% to try to get to 34% as that will lower the other players stakes thus increase their profits? So either lose your stake or incur possible legal action?