web3 is supposedly censorship-resistant, but the US government just sanctioned @TornadoCash, and its founder was arrested.
What's the real deal with censorship in crypto? 🧵 👇
Crypto is considered censorship resistant because the networks are decentralized.
The network can continue to operate as long as a few people somewhere in the world are running nodes.
In web2, the government can order Amazon to shut down the AWS servers for a specific website.
Amazon, being a regulated US company, has to abide by the laws of its government.
But in web3, it's virtually impossible to enforce. A few individuals could in Bali or Malta or anywhere else on 🌍 could power the entire network.
If the network is sufficiently decentralized, it's almost impossible for governments to shut it down.
Enforcing censorship in a decentralized network is an endless game of whack-a-mole.
There's a similar loop with illegal movie streaming websites.
A new illegal streaming website emerges → Government bans it months later → Developers move it to a new domain.
But that doesn't mean the government has no power.
• Governments can ban fiat ← → crypto exchanges.
This doesn't make crypto completely useless. but it makes Crypto very unattractive for 99% of users.
I mentioned this as one of the key risks in my article titled "What could kill crypto"
twitter.com/shivsakhuja/status/1539124331002871809
Theoretically, people can get around it by using crypto debit cards, or using crypto ATMs / OTC traders to get fiat from their crypto.
But that might be illegal in many countries. And even if not, it just isn't worth the hassle for most users.
The government can also sanction crypto apps or networks as they did with the @TornadoCash, taking the websites down and making them illegal to use.
People around the world can still spin up new frontends for the app (and they have).
But again - it just isn't worth the risk for most people.
Why would you want to do something illegal and risk massive repercussions?
Governments can also impose huge taxes on crypto to discourage use.
The gist of this 🧵:
• Technically speaking, it's virtually impossible to enforce censorship in web3.
• Practically speaking, governments can make a network or dapp illegal or cost-prohibitive to use so that there are it's worth the risk, cost, or effort for anyone.