The Director of Research at Coin Center Peter Van Valkenburgh raised an interesting point on Monday when he tweeted a screenshot from the SWIFT website detailing the entity’s role in sanctions enacted by “national authorities.”
Comments on the tweet immediately compared the information to Ethereum’s role in processing transactions.
Send tweet. pic.twitter.com/82IRrRLbDR
— Peter Van Valkenburgh (@valkenburgh) August 22, 2022
SWIFT is a global payment messaging service that allows banks to communicate with one another concerning financial transactions. According to February 2022, SWIFT processes transactions between “4 billion accounts and 11,000 institutions in more than 200 countries.”
Van Valkenburgh’s tweet stated that SWIFT “does not monitor or control the messages that users send through its system.” Further, it articulated that”
“All decisions on the legitimacy of financial transactions under applicable regulations, such as sanctions regulations, rest with the financial institutions handling them… As far as financial sanctions are concerned, the focus of SWIFT is to help its users in meeting their responsibilities to comply with national and international regulations.”
The rest of the page on SWIFT’s website explains that “SWIFT is only a messaging service provider and has no involvement in or control over the underlying financial transactions.”
Interestingly, in response to the question “does SWIFT expel banks” the response states, “SWIFT is neutral.” However, it confirms that it “disconnected all designated Russian entities” pursuant to E.U. regulation in 2022.
Comparison to sanctions on Ethereum
The Ethereum network has been under scrutiny over the past week following U.S. sanctions on Tornado Cash, an application running on the protocol.
Ethereum handles transactions between 674,265 entities daily, with nodes running from over 64 different countries.
Projects such as Circle’s $USDC, Aave, Uniswap, and Balancer complied with the U.S. sanctions by either blacklisting addresses or removing access to the front-end GUI for users who had interacted with Tornado Cash.
However, over the weekend, it was revealed that Ethermine, the largest mining pool on Ethereum, is no longer processing blocks that contained Tornado Cash transactions. While this is within the right of any validator (either PoW or PoS), it is a step toward the censorship of Ethereum at a protocol level.
The role of a miner or validator on a blockchain is to process, secure, and verify transactions within the network. They are a core part of the network’s infrastructure, not an application built on the protocol.
CryptoSlate reached out to Ethermine for comment but could only reach mods on its Discord community. The mods assumed the decision was made to ensure compliance with the U.S. sanctions. However, if SWIFT’s model were to be followed, there may be an argument that Ethermine does not need to make such drastic changes.
Is Ethereum neutral?
Should Ethereum be considered a neutral entity with users being held liable for their own actions concerning sanctioned entities? SWIFT can stand behind its claim that “responsibility for ensuring that individual financial transactions comply with sanctions laws… rests with the financial institutions handling them.”
The argument can be expanded further to argue that Tornado Cash could be considered a neutral entity as the Tornado Cash protocol itself does not launder money, the users who use it make that choice.
The definition of a “financial institution” within a decentralized ecosystem is unclear. One of the most important aspects of crypto regulation is likely to revolve around confirming legal definitions of blockchain terminology. In the E.U., this is already underway and could frame the basis of crypto regulation in the future.
There are other means of laundering funds through privacy-first assets. Cash can be used easily to launder funds due to its in-built privacy mechanic in that it is a physical asset that can be moved without a trace. No sanctions are placed on the money itself if a criminal uses cash to launder funds. Therefore, why have all Ethereum addresses related to Tornado Cash been sanctioned?
There are no simple answers to these questions. However, it is clear that old laws are being applied to new technology, and there is a need for technologists and lawmakers to collaborate on this topic to ensure the free and fair development of decentralized networks.