Is Ethereum still neutral?

Ethereum is the mother of all smartchains: blockchains with smart contracts. Bitcoin created digital gold. Ethereum created a world computer, accessible to anyone.

This computer is the Ethereum blockchain, on which you have wallet accounts (like on bitcoin), and little running programs called smart contracts.

Ethereum currently uses the proof of work (PoW) consensus mechanism: thousands of miners compete with each other to mine the next block.

You can see each block produced as it happens on Etherscan.

What neutrality is

Each miner tries to mint the next block of the blockchain by bundling up valid transactions taken from the mempool. (The memory pool, or mempool, is where you send your transactions to the blockchain. They stay there for some time, waiting for a miner to pick them up and integrate them in the next block.)

Neutrality is the fact that miners don't pay attention to which transaction they pick from the mempool. They don't discriminate wallet addresses nor smart contracts. They don't filter transactions by their recipient, sender, or smart contract used. They just usually pick the transactions for which the sender has offered the highest gas fees, because these fees go to the miner's wallet. That's all.

They are neutral.

Vitalik Buterin

Vitalik Buterin, who invented Ethereum, rightfully likes to talk about Ethereum's neutrality. That young genius is Russian, but disapproves of Russia's invasion of Ukraine. On February 24th 2022, he tweeted:

https://twitter.com/VitalikButerin/status/1496695587495981056

Tornado Cash

Tornado Cash is an application running on Ethereum. It's the most used mixer on Ethereum.

On most blockchains, all transactions are written in plain text on the blockchain. Everybody can see who sends what to who. Having an address on the blockchain is like sharing your bank account transactions for the whole world to see. Wonderful for transparency, but not so good for your privacy.

To allow Ethereum users to reclaim some privacy, mixers use some clever technics to mix your transactions, so it gets much harder to link senders and recipients.

The problem is that hackers also use these mixers to launder the money they stole.

On August 8th 2022, the US Treasury department sanctioned Tornado Cash for money laundering. One of its developer was arrested and many addresses using Tornado Cash were black listed.

Hard blow for privacy.

Ethermine

And this is where it gets worse:

https://twitter.com/takenstheorem/status/1560690035955011585

Ethermine is the largest mining pool on Ethereum, and somebody noticed that it has stopped picking all transaction sending to or withdrawing from Tornado Cash.

This is a terrible precedence of a mining pool filtering the transactions it processes.

The mining pool Ethermine is no longer neutral.

Looking at Etherscan, you can see that Ethermine is minting a lot of blocks on Ethereum:

List of blocks on Etherscan.io sorted by latest.

Ethermine is Ethereum's first mining pool, with nearly 30% of the total hash rate. This means that Ethermine produces around 30% of the blocks on Ethereum.

List of mining pools on MiningPoolStats.stream.

This means that Tornado Cash transactions are 30% less likely to be minted, or, put in another way, will get minted 30% more slowly.

Imagine a biased Ethereum

Let's forget about the Tornado Cash topic. What could a non neutral Ethereum look like?

Well, we could see applications on Ethereum partnering with miners to filter their competitors. Uniswap could partner with Ethermine, to be the only DEX whose transactions are minted. If that works, Uniswap could carry on, partnering with more and more miners, to the extend where all other DEXes would have just of fraction of Ethereum's hash power left, and would then suffer a huge disadvantage over Uniswap, whose transaction would be much faster.

I took Uniswap as it was the first example that came to my mind, but you see the picture. As soon as miners dump neutrality, they open the gate to bribery, and that will most probably lead to a world where applications fight each other over the miner's hash power.

This will make the smaller applications suffer. This won't be good for innovation.

What can be done?

1. Leave Ethermine if you are part of it

The first obvious action can be taken easily. Ethermine is a minning pool.

When you use your computer to mine Ether, the chance that you will mine the next block are close to zero and you can have your computer crunching billions of hashes for years without mining a single block in the end.

So people join a mining pool: everybody tries to mint the next block, and if one guy in the pool succeeds, he shares his rewards with the rest of the pool. Joining a mining pool is a good way to be assured of small revenues when you put your computer to work.

So if you use Ethermine as your mining pool and think neutrality is important, the obvious action to take now is to quit Ethermine and join another mining pool.

2. Slashing biased miners

This is out of our reach, but there are discussions about slashing the revenues of non neutral miners. I have no idea how that could be implemented at the protocol level, but that would be the best option to safeguard that neutrality so important to Ethereum.

I hope you liked that article. As you can see, miners are a key component of blockchains, as they are the block producers. They have an enormous power, and the worst thing that can happen to any blockchain, is that the majority of its hash powers gets in the hands of a small mining cartel.