ETH is about to get Censured, Bitcoin not.
Since ETH merge in October of 2022, 67 percent of blocks have been enforcing OFACcompliance. OFAC is a branch of the U.S treasury that focuses on administering and enforcing economic sanctions. In August of 2022, they sanctioned a smart contract on ethereum and added it to the list of ethereum addresses that had already been sanctioned by OFAC. The reason that censorship is easy to do on ethereum now is due to concentration among the staking pools, with Lido, Kraken, Binance, and other regulated staking pools. Since the merge, the majority of ethereum validators have been imposing OFAC censorship on the blocks that they produce, refusing to package up.
The most important details in this text are that large staking pools are centralized government regulated entities that can be punished by U.S Regulators. Lido is publicly traded in the U.S and backed by American Venture capitalists. Bitcoin mining is a difficult business to do at scale due to the need to cool mining machines and the need to lock in cheap electricity. ASIC’s burn out and need to be replaced if they run too high of a speed and then burn out too soon. Bitcoin is proof of work and doing proof of work is very hard.
Bitcoin mining companies are constantly coming and going, and large Bitcoin mining companies go bankrupt every cycle. Proof of work leads to less centralization than proof of stake, as there are fewer ways to mess up proof of work and go bankrupt. However, Bitcoin mining pool centralization is still a major issue. Bitcoin mining pools are a node service that only takes place in cyberspace, allowing users to point their hash to any mining pool in the world. This makes them more secure and decentralized than ethereum staking pools, which have actual custody of their eth.
However, if a mining pool does shady business, users may not be able to get out if the US government tells them not to return their stake. Proof of stake leads to more centralization, which means censorship will increase for ethereum at the protocol level. Large staking pools like coinbase and Lido will gain market share as a percentage of the total staking market. Bitcoin mining pools do not custody the ASIC’s the Bitcoin mining machines, so it is easy to switch pools and if all the Bitcoin miners refuse to include my transaction in their next block, I can keep raising the transaction fee attached to it until someone takes it.
This is why proof of stake is a bad idea if you want your money to be neutral and censorship resisted. Bitcoin mining is robust and anti-fragile due to its transaction fee Market that will adjust to any conditions, such as an empty block attack. This is because miners will not break U.S. law and risk losing their licenses to include a transaction, so they will not be tempted by mining fees. When transaction fees get high, it can become profitable to mine even for old Bitcoin mining machines, so this is how the market develops. Large centralized validators will always be regulated in the US and other companies and other countries due to their size.
Proof-of-stake systems are Trending towards regulatory capture and ethereum is already at 60% of that market. This is why holding ethereum makes no sense, as in a world of Central Bank digital currencies, there will be another captured coin that will take the market share from ethereum. Freedom money is needed, as it has a robust anti-fragile Market where other Bitcoin miners can take money and not be stopped by the US government.
