Borderless, universally accessible, censorship-resistant - these are some of the key characteristics that make a blockchain more valuable than a centralized solution. But how is a blockchain's value impacted if its transactions can easily be censored? Are there other attributes that make the technology valuable?
Censorship of blockchains isn't anything new. In fact, we have already seen accounts and transactions being censored on well-known blockchains including Bitcoin, Ethereum, and EOS.
- In 2010 the Bitcoin community hard-forked the chain to reverse a transaction that generated 186 billion Bitcoin
- In 2016 the Ethereum community hard-forked the chain to return ETH stolen from the DAO by a hacker
- In 2018 shortly after the EOS mainnet launch, the ECAF ordered the freezing of several accounts that were suspected of fraud.
Bitcoin and Ethereum are considered to be two of the most "decentralized" blockchains in the space. However, the hashing power of the Bitcoin network is under the control of four mining pools, and the Ethereum network is under the control of just two. In theory, these mining pools could collude together to censor transactions, but they do not.
So is it actually decentralization that makes a blockchain censorship-resistant, or something else?
Circle, the company behind the USDC stablecoin, recently blacklisted an Ethereum account. When the news broke, some argued that this made USDC even worse than holding US dollars in a bank account. But there is one major difference that sets USDC apart from a traditional bank account, and that's transparency.
Even though Circle was able to blacklist the account, there was no way they could do it secretly, because Ethereum is a transparent, public ledger. If this money had instead been held in a private bank account, the funds would have been frozen without anyone being none the wiser. Transparency is key to a public blockchain's value.
Mining pools and block producers need to think twice before reversing a transaction or suspending an account, because the platform they have invested a great deal of resources into could end up losing reputation points, and cause competing platforms to appear more attractive.
Competition in the blockchain industry is fierce. If it were to come to light that block producers were colluding to censor transactions, it would certainly give an upper hand to the chain's competitors. After all, the users and game developers do have the option of moving their currencies and assets to a competing chain.
Later this year Ultra is set to launch their EOSIO-based blockchain to compete in the PC game distribution industry. In what may be an unprecedented move, the team at Ultra is planning to elect all the block producers themselves, instead of passing on the responsibility to the community. It could be argued that this will be one of the most centralized public blockchains to date.
Now let's suppose the block producers appointed by Ultra were to collude in order to suspend accounts or censor transactions, perhaps at the behest of the authorities or a private game developer. The censorship would be detected and the community would cry foul on social media. This would have a negative impact on Ultra's reputation and likely cause their users to seriously consider moving to a competing platform.
As the community grows, the possibility of censorship decreases and the reputation of the chain strengthens. In an industry ripe with competition, preventing censorship is of the utmost importance, and transparency is what allows the community to keep everything in check. In the end, it's the community that keeps a blockchain censorship-resistant.
