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How Censorship Resistant Are Decentralized Systems?

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Abstract

Public permissionless blockchains are designed to be censorship resistant, meaning access to the blockchain is unhampered. In practice, different blockchain ecosystem actors (such as users, builders, or proposers) can influence the degree to which a blockchain is resistant to censorship. In a recent Staff Report, we examine how sanctions imposed by the Office of Foreign Assets Control (OFAC) on Tornado Cash, a set of noncustodial cryptocurrency smart contracts on Ethereum, affected Tornado Cash and the broader Ethereum network. In this post, we summarize findings regarding sanction cooperation at the settlement layer by “block proposers”—a set of settlement actors specifically responsible for selecting new blocks to add to the blockchain.

Suggested Citation

  • Jon Durfee & Michael Junho Lee, 2025. "How Censorship Resistant Are Decentralized Systems?," Liberty Street Economics 20250214, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:99555
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    File URL: https://libertystreeteconomics.newyorkfed.org/2025/02/how-censorship-resistant-are-decentralized-systems/
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    More about this item

    Keywords

    sanctions; cryptocurrency; blockchain; censorship; regulation; decentralized systems; Ethereum;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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