Bitcoin Censorship Through Mining Sets Dangerous Precedent, Specialists Say

The creation of the Bitcoin mining pool, Blockseer, has caught the attention of several specialists who are giving their opinions and analyzing its impact on the cryptocurrency ecosystem. This is because the mining group was created to comply with regulations of the Office of Foreign Assets Control (OFAC) of the US government. To do so, it will censor the transactions of the wallets included in the black list of the agency and force miners to comply with Know Your Customer (KYC) procedures.

Blockseer is a subsidiary of the US company DMG Blockchain Solutions, which recently announced the private beta launch of its Bitcoin mining pool. The mining group will operate under a new methodology in which the new blocks will only include filtered transactions. The filters will be based on data provided by Walletscore, the company’s own blockchain forensic tool, and other sources such as OFAC’s blacklisted Bitcoin wallet addresses.

The methodology implemented by Blockseer is already leaving a mark on the cryptocurrency ecosystem, as several specialists believe that the precedent does not invite optimism.

Watch out! Bitcoin mining, territory mined?

Former lead Monero developer Riccardo Spagni is convinced that before long most Bitcoin mining pools will be forced to perform transaction filtering. To avoid this, he proposes to use decentralized solutions such as the p2pool mining pool, and to focus on the Stratum V2 protocol, which incorporates 13 functions to increase performance, economic savings and decentralization of mining. He also believes that more privacy needs to be added to Bitcoin to evade censorship.

For Paralelna Polis co-founder Juraj Bednar, the censorship introduced in Bitcoin mining by the Blockseer pool is “A dangerous precedent that is even scary”. Like Spagni, he believes that the leakage of transactions will be a practice that will end up being imposed among the mining pools because they are not rebellious against the system, but rather have shareholders and interests to defend, so, if the government establishes it, all they will end up complying.

dangerous mining censor BTC

dangerous mining censor BTC

The censorship that regulators intend to introduce into Bitcoin mining is dangerous, experts say. Source: Tumisu /

Bednar sees a somewhat dark outlook coming as he considers that if 50% of Bitcoin’s hash rate ends up applying censorship, then this would remain an established rule. He points out concern that it is understood that each mined block that introduces transactions prohibited by international organizations, it means that the miners would be laundering money.

On his blog, Bednar posted an analysis in which he notes that he has reason enough to think that even miners who are morally against filtering transactions will actually end up complying for economic reasons.

If the government comes in and says, “You can’t mine the blocks that these UTXOs spend,” or you will lose your bank account, exchange account, business permit or go to jail for money laundering, most of the big miners would comply.

Juraj Bednar, hacker and founder of Paralelna Polis.

Bednar also comments that the first steps of the end of the censorship in Bitcoin are already underway and although now it does not mean much, if you believe that once more miners join the leak of transactions, there will be no turning back. He adds that users will have nowhere to shelter because second-tier solutions like the Lightning network will also be affected by scrutiny from regulators like the Financial Action Task Force and OFAC.

In his publication Bednar comments that the regulatory requirements from mining they could generate two types of Bitcoin, one “legal” and the other “illegal.” He believes the two could coexist on one chain or separate chains if a fork occurs depending on how miners and exchanges handle their willingness to succumb to regulatory pressure or violent coercion if they fail to comply. In any case, everything would remain to be seen.