Censorship Resistance

Last Updated on November 21, 2022

  1. The freedom to transact: Third parties cannot prevent you from sending or receiving assets.
  2. The freedom from confiscation: Third parties cannot take away or freeze your assets.
  3. The immutability of transactions: It is nearly impossible for third parties to change transactions after the fact.

In traditional finance, gold is censorship resistant, whereas almost all government issued fiat currency is heavily censored. Compared to cash, most assets in modern finance are highly censored. When it comes to money in your bank account, for example, all three pillars of censorship resistance are easily violated: It can be confiscated, you can be cut off from the ability to transact, and your transactions can be reverted.

Censorship resistant financial products make it that much harder for governments to appropriate their citizen’s freedoms, economic or otherwise.

Capital Control: A form of financial repression where governments restrict the ability of citizens to move their money into foreign assets like dollars, gold, or equities. If enough people in a country have access to assets that are resistant to capital controls, it becomes difficult for a regime to enforce capital controls.

Money in your bank account is not legally yours. When you deposit money, you are loaning it to the bank, which is why you can earn interest on your deposit. When you withdraw, you are effectively recalling the loan

Bank Runs: A bank run can also occur in centralized cryptocurrency exchanges, acknowledging that such exchanges are not technically banks. Cryptocurrencies that are held in self-custody are impervious to bank runs. That’s because you are the bank.

Sanctions: Often used for objectively good purposes, their impact on individuals can be devastating.  Cryptoassets like Bitcoin, individuals in sanctioned countries can retain access to global markets, enabling them to receive, for example, remittances from friends and family abroad

Ethereum is more censorship resistant than many of its major peers because its network is very distributed. Binance Smart Chain and Solana both use PoS-like mechanisms, but their networks are quite small and controlled by central entities. Arguably they are as censorable as any government issued fiat currency.