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Bitcoin miners are grappling with increasing regulatory scrutiny, as pressure builds for them to monitor and filter transactions linked to addresses with criminal connections. The risk of major mining pools implementing transaction filtering for sanctioned addresses could usher in a new era of protocol-level censorship for Bitcoin.
Regulatory Landscape
While miners currently rarely decline transactions for sanctioned addresses, the growing regulatory focus on the cryptocurrency industry, particularly in the United States, has raised concerns. U.S. regulators, including the Office of Foreign Assets Control (OFAC), could view miners providing services to individuals on sanctions lists as materially supporting sanctioned persons, potentially leading to sanctions on the service providers.
Censorship as a Future Practice
Experts, such as Ben Hutten from law firm Orrick and Christopher Bendiksen of CoinShares, foresee a future where some miners may start censoring transactions associated with addresses on the OFAC list. This could become a cost of doing business for miners in Western countries.
Early Warning Signs
Recent observations indicate a potential shift towards censorship. A bitcoin researcher identified instances where major mining pools, including ViaBTC, F2Pool, and Foundry, did not include transactions involving OFAC-sanctioned addresses in their blocks. While this may be an isolated event, some believe it could be an early sign of miners voluntarily imposing anti-money laundering measures.
Rising Pressure on Miners
Miners are becoming more cautious due to the escalating pressure from regulators. OFAC and the Financial Crimes Enforcement Network (FinCEN) have demonstrated their willingness to take innovative measures against the crypto industry, such as designating cryptocurrency mixing as a primary money laundering concern.
Potential Future Developments
Concerns about compliance are growing in the industry, with the possibility of miners, especially in the U.S., facing increased regulatory scrutiny. The past move by Marathon Digital to briefly introduce transaction filtering and subsequent discontinuation highlights the industry's recognition that compliance with regulations is inevitable, even if unpopular.
Conclusion
As the regulatory landscape evolves, miners may find themselves navigating the delicate balance between compliance and economic viability. The potential for miners to filter transactions from sanctioned addresses could reshape the future of Bitcoin, raising questions about the decentralized nature of the cryptocurrency and its susceptibility to regulatory pressures.
