Coinbase would rather shut down staking than enable on-chain censorship — Brian Armstrong

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In light of the recent banning of crypto-mixing tool Tornado Cash and the subsequent arrest of Tornado Cash developer, there has been a growing debate about what crypto service providers would choose between decentralization and censorship in the form of compliance.

The question has become more prominent as Ethereum (ETH) moves from its current proof-of-work (PoW) blockchain to a proof-of-stake (PoS) mining consensus. With the transition less than a month away, a user pointed out that more than 66% of validators on the Beacon chain (Ethereum PoS chain) will adhere to the regulations of the US Department of the Treasury’s Office of Foreign Assets Control (OFAC).

When asked if Coinbase and others would choose to comply with enforcement requests and impose protocol-level censorship or shut down stack services, Brain Armstrong, the CEO of Coinbase, chose the latter. Armstrong said:

“It’s a hypothetical that hopefully we won’t face. But if we did, we would go with BI I think. Must focus on the bigger picture. There may be some better option (C) or a legal challenge as well that could help achieve a better result.”

There has been increasing speculation about the actions of Coinbase, Kraken and other prominent crypto exchanges, which are also key ETH validators on the Beacon chain.

Related: Tornado Cash ban could spell disaster for other privacy protocols – Manta co-founder

Many believed that a centralized crypto exchange would take the easy way out and impose protocol-level censorship rather than block individual transactions from banned crypto mixers like Tornado Cash.

The current dilemma comes from the OFAC sanctions that deemed all tornado cash transactions illegal. However, decentralized finance (DeFi) experts believe that it has complicated the issue. Instead of sanctioning a particular address or the country, the regulators decided to ban the protocol.

Experts believe that the ban decision would discourage many protocols and exchange operators from engaging in anything related to Tornado Cash, including ETH transaction through the mixer, which could lead to unnecessary censorship.