According to Armstrong: “It's hypothetical we hopefully won't face. But if we did, we'd go with B, I think. Got to focus on the bigger picture. There may be some better option (C) or a legal challenge as well that could help reach a better outcome.”
Following the recent ban on the crypto mixing tool, Tornado Cash, and the subsequent arrest of the Tornado Cash developer, there have been growing concerns over whether crypto service providers would choose decentralization or censorship in the form of compliance.
As Ethereum (ETH) transitions from its current Proof-of-Work (PoW) blockchain to a Proof-of-Stake (PoS) mining consensus, the concerns have become more prominent.
With the transition scheduled for mid-September, a user noted that more than 66% of validators on the Beacon chain (Ethereum PoS chain) would follow the Office of Foreign Assets Control (OFAC) regulations of the United States Department of the Treasury.
However, when asked whether Coinbase and others would comply with compliance requests and impose protocol-level censorship or shut down staking services, Coinbase CEO, Brian Armstrong chose the latter.
According to Armstrong:
“It's hypothetical we hopefully won't face. But if we did we'd go with B I think. Got to focus on the bigger picture. There may be some better option (C) or a legal challenge as well that could help reach a better outcome.”
Speculations exist over the actions of Coinbase, Kraken, and other prominent crypto exchanges that are also key ETH validators on the Beacon chain.
Many people expect centralized crypto exchanges to take the easy route and impose protocol-level censorship rather than block individual transactions from banned crypto mixers like Tornado Cash.
The present situation stems from OFAC sanctions that made all tornado cash transactions illegal. However, experts in decentralized finance (DeFi) believe it has aggravated the issue. Instead of sanctioning specific addresses or a country, regulators have decided to outrightly prohibit the protocol.
Experts believe that a ban would discourage many protocols and exchange operators from engaging in anything Tornado Cash-related, including ETH transacted through the mixer, potentially leading to unnecessary censorship.