The Protocol: Bitcoin Censorship, or Just 'Spam Filtering?'

The idea that decentralization could help to prevent censorship – either by government or powerful private entities – is baked into the ethos of blockchain. But it's not always so clear-cut; there are differing opinions on what actually constitutes censorship, and the debate plays out in different ways on different blockchains.

In this week's issue of The Protocol, we're covering a heated debate playing out in the Bitcoin community over one mining pool's decision to "filter" transactions related to Ordinals inscriptions, often colloquially referred to as "NFTs on Bitcoin." Our Sam Kessler dives into a more official type of censorship increasingly happening on the Ethereum blockchain: the avoidance by several data-block builders of transactions subject to financial sanctions by the U.S. government.

This article is featured in the latest issue of The Protocol, our weekly newsletter exploring the tech behind crypto, one block at a time. Sign up here to get it in your inbox every Wednesday.

MOST INFLUENTIAL: As Consensus Magazine Managing Editor Ben Schiller says, it's a list not a ranking, but CoinDesk's annual "Most Influential" package is just out, and blockchain developers are featured prominently – a reflection of the year's biggest trends and surprises in Bitcoin and crypto technology.

The group included Casey Rodarmor, the artist and long-time Bitcoiner who pioneered Ordinals, often referred to as "NFTs" on Bitcoin, which have proven popular with many users but also contributed to congestion and elevated fees on the original blockchain. Also in is Lido DAO – yes, the entire organization – because it has grown to dominate the Ethereum staking landscaping, bumping up against the 33% market-share threshold that could pose serious security concerns.

Polygon's Jordi Baylina, an early auditor of Solidity smart contracts, represents the blockchain industry's pivot this year toward zero-knowledge proofs, a type of cryptography tipped as far-reaching and potentially revolutionary. Avery Ching, a developer behind the Aptos blockchain, is presented as the embodiment of the "VC chain." Jesse Pollak, of Coinbase's Base, led the way among corporate-backed layer-2 networks; another nod went to the Optimism ecosystem's Karl Floersch, who helped to create the blockchain framework used by Coinbase.

Blockstream developer Lisa Neigut was cited for her work on Bitcoin's Lightning Network, while " teaching people the world over how to sync a node." More controversial, perhaps, is Paul Sztorc, whose "BIP 300" proposal to scale Bitcoin using "drivechains" has split the community.

It goes without saying that The Protocol readers will be familiar with many of the names from our coverage this year, including Antonio Juliano, who migrated the decentralized derivatives exchange dYdX to run on a standalone blockchain in the Cosmos ecosystem away from its own layer-2 network on Ethereum; as well as Chainlink's Sergey Nazarov, who has reoriented the oracle project to focus on the fast-growing arena of interoperability between blockchains.

CENSORSHIP OR 'SPAM FILTERING?' Opinions are divided in the Bitcoin community over the efforts by a new mining pool called Ocean, guided by the feisty developer Luke Dashjr and backed by Block Inc.'s Jack Dorsey, to weed out NFT-like transactions the project characterizes as "spam." Leaders of the project say it was deployed using the node client software Knots, which filters out many transactions involving Ordinals inscriptions, often characterized as "NFTs on Bitcoin." The big idea is that some purists say the Bitcoin blockchain should remain uncluttered, to preserve it for payments. In posts on X, Dashjr deflected accusations of censorship by characterizing the move as a "filter" on "spam," and arguing that there was a "long-standing vulnerability" in Bitcoin Core – the dominant software used by most users to access the blockchain – that's been "exploited by modern spammers." CoinDesk's Sam Reynolds reported that the number of unconfirmed transactions is rising on the Bitcoin blockchain, now at more than 260,000. "Bitcoin Core has, since 2013, allowed users to set a limit on the size of extra data in transactions they relay or mine (`-datacarriersize`). By obfuscating their data as program code, Inscriptions bypass this limit," Dashjr wrote. Jason Fang, managing partner and co-founder at Bitcoin-heavy Sora Ventures, suggested that the inscriptions are likely to be safe for now, broadly speaking; many miners will avoid Ocean because processing the Ordinals transactions can be so profitable.

ALSO:

Highlighting blockchain tech upgrades and developments.

1. Mantle has launched Mantle LSP to give users instant and sustainable yields tapped directly from Ethereum’s PoS validator network, according to the team: "Mantle LSP aims to maintain the highest sustainable core yield through the exploration of MEV and Treasury yield sharing, while ensuring the wide adoption of $mETH across a diverse range of Mantle L2 DeFi applications, core technology partners and centralized exchange partners.

2. TBD, a Bitcoin-focused unit of Jack Dorsey's Block, has introduced the first live components of tbDEX, an open-source protocol allowing financial institutions to facilitate global transactions using verifiable credentials, according to a press release. Yellow Card, a crypto exchange in Africa, will be the first institution to use tbDEX, and will "offer individuals in 20 countries the convenience of receiving bitcoin or stablecoin payments directly in their local currency to withdraw from their bank accounts peer-to-peer payment apps or mobile money providers."

3. The Umee UX chain, the largest Cosmos-based lending protocol, announces a proposed merger with Osmosis, the leading Cosmos DEX, to form a unified interchain DeFi hub, according to the team.

4. RARI Foundation, focused on NFT infrastructure, announced that it has used Arbitrum Orbit technology to create a new layer-3 chain, RARI Chain, and has just unveiled the test network.

5. Aragon has deployed its modular Aragon OSx DAO framework and no-code Aragon App on the layer-2 Arbitrum, opening the door for DAOs to interact with a thriving ecosystem of protocols, applications, and assets, according to the team: "Arbitrum’s rollup technology serves as a gateway to the largest layer-1 ecosystem – Ethereum – and Aragon’s user-friendly tech stack unlocks the mass adoption of DAO technology." Aragon has already deployed on the layer 2s Polygon and Base.

See the entire Protocol Village list from this past week here.

Funraisings

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Data and tokens

Solana, the layer-1 smart-contract blockchain, has seen its SOL token jump sixfold this year, vastly outperforming its dominant rival, Ethereum, whose ether (ETH) is up just 92%. According to the digital-asset analysis firm Messari, the gains for Solana have coincided with signs of strong transactional activity on the network: Weekly active addresses on Solana have now returned to levels prior to last year's collapse of Sam Bankman-Fried's FTX crypto exchange. (Bankman-Fried was a major Solana booster.) Solana's total value locked, or TVL – a key metric when evaluating a blockchains prominence in decentralized finance, or DeFi – has doubled, "indicating a robust comeback," the Messari analyst Ally Zach wrote in a report. What's more, she noted, "Solana's ecosystem is diversifying beyond DeFi, with a notable increase in consumer-based applications, including social media, content monetization platforms and innovative uses of compressed NFTs." There's also been interest from crypto users in "airdrop farming," focused on applications including Jupiter, Marginfi, Drift, Zeta and JitoSol, according to the report. CoinDesk's Oliver Knight reported this week that "Jito, Solana's liquid staking protocol, offers stakers a yield of 6.96%, a level that led to $327 million in inflows since Oct. 13."