Report Examines Legal Implications of Inclusion Lists for Ethereum
The Proof of Stake Alliance (POSA) and co-authors Khushi Wadhwa, Nikhil Raghuveera, and Jane Khodarkovsky have released a report urging the Ethereum community to evaluate the legal and policy implications of unconditional inclusion lists, proposed to enhance censorship resistance on Ethereum.
Inclusion Lists Explained
Ethereum inclusion lists mandate that specific transactions be included in blocks, preventing validators from excluding them based on content or origin. This mechanism aims to uphold Ethereum’s foundational principles of censorship resistance and credible neutrality.
Concerns Over Regulatory Compliance
Despite their potential benefits, inclusion lists raise issues regarding regulatory compliance and legal liabilities. Raghuveera, CEO at Predicate, highlighted that the intended censorship-resistant objectives may conflict with policy and legal ramifications associated with inclusion lists. The implementation of such lists could subject network actors to heightened regulatory scrutiny.
Defining Credible Neutrality
The report calls for a clear definition of credible neutrality, crucial for evaluating proposed changes to Ethereum. Credible neutrality, introduced by Vitalik Buterin, is essential for maintaining fairness and impartiality within the decentralized network, ensuring equal access and opportunities for all participants.
Tension Between Goals and Regulations
There exists an inherent tension between Ethereum’s censorship resistance aims and the regulatory frameworks affecting many participants. Mangiero emphasized that while the community debates inclusion lists, the broader legal and policy implications have not been sufficiently addressed.
Regulatory Focus on Application Layer
The report draws parallels between Ethereum and TCP/IP, suggesting that regulators may find it ineffective to target Ethereum's base layer as it serves a neutral data transmission role. Instead, regulatory attention may shift towards applications, which often feature centralized control points susceptible to oversight.
Risks of Regulatory Scrutiny
The authors caution that inclusion lists may lead to increased scrutiny from regulators, particularly if they perceive these lists as involving subjective choices about transaction inclusion. This could result in block builders being pushed out of jurisdictions like the US, diminishing Ethereum's geographic diversity and undermining its censorship resistance.
Recommendations for Future Research
The report advocates for structured research into Ethereum’s credible neutrality principles to minimize legal challenges. Solutions should ensure equitable treatment of transactions and maintain a decentralized protocol.
Engagement with Policymakers
Active engagement with policymakers is recommended to clarify distinctions between blockchain infrastructure and specific applications, fostering innovation while addressing regulatory concerns.