Educational Byte: Why Blockchains Can Be Censored and Manipulated?

\ The main goal of creating decentralization-oriented systems, like cryptocurrencies, was never to make people rich overnight. Instead, they’re aiming to make people free immediately. In these systems, nobody, not even a government or a company, should be able to manipulate your data or your funds by censoring, blocking, or manipulating your transactions. It’s not always like that with blockchains, though.

\ Sadly, most blockchains still have a potential degree of censorship and manipulation due to their own internal workings. There are several steps and middlemen between transaction sending and transaction approval, which open the doors for others to mess around before the final result. Common systems like Proof-of-Work (PoW), used on Bitcoin, or Proof-of-Stake (PoS), used on Ethereum, integrate middlemen known as miners or “validators” to create new coins and approve transactions.

\ Those middlemen have certain power (especially if they collude) to block or manipulate transactions, even in so-called decentralized systems. The reasons to do it could be mostly for profits or to avoid regulatory issues. Let’s see a bit of how they do it.

Some types of censorship

Blockchains (and similar systems) have several layers or levels in which different things are happening. Think of it like layers in a cake, with each layer doing something different. The network layer connects users, the consensus layer ensures everyone agrees on the state of the blockchain, and the application layer runs programs like smart contracts. Each layer works together to make the whole ecosystem function smoothly. And each layer can have its own type of censorship.

Network Layer

At the network layer, censorship might happen by restricting who can join or communicate within the peer-to-peer (P2P) network. Two common methods for joining a network —DNS seeding and IP hard-coding— can be censored. DNS seeding involves using domain names to find network participants, while IP hard-coding relies on fixed Internet addresses. If someone blocks access to these domains or IP addresses, they can prevent new users from connecting to the network, effectively censoring who can participate.

\ This kind of censorship is easy to circumvent by using VPN, TOR for access and other seeding methods for peer discovery. So, censorship at the network layer is not very dangerous.

Consensus Layer

Moving on to the consensus layer, where the main job is to ensure all “validators” or miners agree on the blockchain’s state, censorship might involve the “validators” or miners themselves. For instance, if they decide not to include certain transactions in new blocks or if they prioritize some transactions over others based on who sent them or their content, this is censorship. They have the power to selectively ignore transactions and can be motivated to do so either by internal incentives in the network (making more money), or external pressures, like government’s regulation.

\ This kind of censorship can be circumvented under two conditions:

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• If there are still non-censoring miners/”validators” who would still include the transaction rejected by others,

• If the censoring ones are either a minority or apply censorship to their own blocks only and don’t refuse to build on top of blocks that already include the transactions they don’t like.

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However, if the censoring miners or ”validators” both have the majority and refuse to build on top of blocks that happen to include the transactions they don’t like, such transactions would be completely blocked from the blockchain. Thus, censorship at the consensus layer is very dangerous for digital freedoms.

Application Layer + Additional Services

Lastly, at the application layer, censorship can occur through some decentralized applications (Dapps) that are not really decentralized. These Dapps, like smart contracts, have rules for how they operate. If these rules allow certain entities (companies, DAOs) to restrict certain users or types of transactions, or even to change the rules themselves (upgradeable contracts), this can be another form of censorship. For example, the operators of the biggest stablecoins, USDT and USDC, are able to freeze user accounts, and they have done so multiple times.

\ Additionally, external services like wallets and user interfaces (e.g., websites) could also impose restrictions, affecting how users interact with the chain.

\ Censorship at the Dapp layer can’t be circumvented at all. Censorship at the wallet and user interface level is generally not dangerous as it can be circumvented by moving one’s private keys to another wallet or using alternative user interfaces.

DAG Evolution

Obyte, as a Directed Acyclic Graph (DAG) system, offers a unique approach that makes it more resistant to censorship than blockchains. In Obyte, transactions are added directly by users without needing approval from miners, “validators”, or any centralized authority. This means that no single entity or group of entities has the power to block or alter transactions, allowing for a more decentralized and open system. Since each transaction automatically becomes a part of the DAG, it’s secure and unchangeable, ensuring that all users can freely participate without fear of interference.

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\ Moreover, while blockchains rely on “validators” or miners to order and confirm transactions, which can sometimes lead to censorship, Obyte uses a different method. Order Providers (OPs) post guiding transactions to help establish a consensus order, but they don’t have the power to change the history or reject transactions. This setup removes middlemen and eliminates the risk of censorship, making sure user funds can never be confiscated or frozen and users are always free to use them however they like.

\ When it comes to external services like wallets or oracles, Obyte’s decentralized nature encourages the development of multiple, independent, and open-source services. Users aren’t tied to any specific service provider, reducing the risk of censorship. Overall, Obyte’s DAG structure empowers users by giving them full control over their transactions, providing a much more censorship-resistant and autonomous experience compared to blockchain networks.

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Featured Vector Image by pikisuperstar / Freepik