Topic: Bitcoin censorship for Russian addresses? (Read 543 times)

There are many ways to hold your own keys and coins which don't involve running a full node though.

I suppose there are different entities who need to be trusted. You can't trade with another person completely trustlessly without running your full node, since you wouldn't be able to tell if your transaction or their transaction has actually confirmed without trusting that the SPV server or block explorer you are using is showing you the correct information. But I suppose you could argue you could still trade trustlessly when only considering the trust between you and the party you are trading with, for example by using Bisq's 2-of-2 escrow set up.

It doesn't protect you against this taint, but it allows you to use Bitcoin non-custodially, which was my point. If both you and me run individually our own nodes, then we don't trust anyone to hold our money. This can be done simply by connecting to an SPV server too, but I suppose that you can't have a trustless trade without involving things such as HTLCs which, as a consequence, require you to verify everything.

I trade peer to peer exclusively and have done for years. I am certain I have had in my possession on many occasions coins which were blacklisted from various exchanges or otherwise deemed as tainted. I have never once had a problem using or spending these coins, exactly because I avoid such centralized exchanges or services which make arbitrary and nonsense decisions as to which coins are tainted or not. If this is a concern of yours, then just mix or coinjoin the coins after you receive them.

I fail to see how running your own node protects you against exchanges arbitrarily labeling some coins as "tainted".

Few. Start using it, be convinced that a decentralized p2p exchange works and others will follow. It wouldn't make sense to have something that respects your privacy, is less susceptible to censorship and is less used. Those who'll remain to centralized exchanges wouldn't want to use it essentially in the first place.

I believe there are enough, and people who stick with "HODLing" do make their researches. I don't believe those few exchanges will have gone soon, but maybe in the long term they just don't get the same attention.

I'm pretty sure that happens quite often. Many people don't even use their own wallet, but keep everything on an exchange. And some people use exchanges to send or receive third-party funds for a trade. Such as this case:

The Netherlands tried (but failed) to require proof of ownership from each address before being allowed to withdraw. Such an requirement would invalidate the "excuse" of saying the address used at an exchange isn't yours.

I get it but what percentage of crypto user do you think is running a full node and trading P2P with their known network. I never found any study about it but I am assuming the number is so little that we may not find many. The vast majority even those of us who are with crypto for years, are using centralized exchange. Some even do not care to move their coins from a custodial wallet, trapped by the false security they provide.

Imagine crypto is available to everyone like the fiats are, only then we will be able to get the full benefit of crypto. We gonna need more educational projects which will eventually help people to understand why we need decentralized currency system over the centralized entities.

It depends on what's your usage. If you're thinking of depositing your coins to a centralized exchange someday, then it's justified to look up for weird transaction activity whatsoever. If that's not the case, then you have much less things to worry, especially if:

• You run your own full node.
• You transact with people who behave alike.

I will need to find some time to play around with this. I heard about these desktop apps but really never looked at them when learnt that the fees for trade are much higher than those centralized exchanged. But yes, I get it, every good thing has a price to pay. Thanks.

Talking about "illicit activity". Imagine you are buying BTC in a P2P trade. You have no way to know (unless you go and do some extensive research with free or paid tools available. Even if you have I do not think none of us spend time of researching) the coins those are coming from a blacklisted address. This always worries me but still lucky that I did not fall for this trap yet.

It's not more P2P exchanges we need, but rather more decentralized P2P exchanges we need (or even just more people using the ones we do have). LBCs might be P2P, but it is completely centralized, hence the KYC requirements.

It is easy to trade any coin for any other coin in a decentralized and trustless way. The difficulty comes when you want to start trading coins for fiat. Trading for fiat will never be as easy as trading for other crypto because, well, fiat is slow and clunky and centralized.

Exactly. As soon as a single transaction has been made, the bitcoin in question could have moved to the ownership of someone else on the other side of the world. But exchanges will treat any addresses linked to a KYC account as belonging to that individual, whether or not they actually are.

Have you checked Bisq?

Correct, and that's he said too. It just doesn't matter if it's really Russian owned or not. If a government starts dictating what's Russian and what's not, centralized exchanges are unfortunately doomed to obey to this nonsense.

It is irrational to consider Russian some of the addresses that a Russian used to transact with, but it's as irrational as to behave Bitcoin as non-fungible. We've seen this before with bitcoins that were blacklisted from some exchanges due to "illicit activity".

With the current adoption of bitcoin and overall cryptocurrency, it is not much easy to avoid those centralized exchanges especially for those who are not much internet savvy and not with the crypto for some years, also do not understand the technology.

Couple opinions I have.
1. Have more p2p exchanges but here the problem is when the exchanges gets bigger they starts to comply kyc. If I am not wrong then with Localbitcoin we have experienced this. But still having more p2p exchanges give the bitcoin users and overall crypto users some space.
2. I am not sure if this is possible to create completely decentralized exchange like all those DEX on alt chains. If that could be done then we will enjoy full benefit of decentralization.

Yes they can but if the Russian account holder send bitcoin (withdraw) to an address then the exchange can not tell that that address owned by the same Russia guy. I could get paid for a job that I did or for any service and the guy could pay me. But that does not make my address Russian owned. There are tools to trace back bitcoin but I do not think one can tell 100% that an address x is owned by a person y unless the address x is owned by a centralized service and they have KYCed the person.

No, but that won't stop centralized exchanges and blockchain analysis companies from creating a list of addresses which they think are linked to Russian users, sharing that with various governments, and blacklisting those addresses from their systems.

If a user completes KYC on a centralized exchange, then they can easily be identified as Russian or living in Russia by their uploaded documents. Any address which deposit coins to that account will be deemed "Russian", as will any address which receives a withdrawal from that account. Any addresses linked through common input heuristics to those addresses will be similar deemed to be "Russian". Coins and transactions will then be traced both forward and backward to try to identify other addresses or wallets belonging to these users. These heuristics are inaccurate as you point out, but that has never stopped these companies from using them or governments from relying on them. Many innocent users will get caught up in this censorship, but neither the exchanges nor the government will actually care.

The best solution remains to avoid centralized exchanges or any other service which takes custody of your coins.

What is a russian Bitcoin Address?
The problem I see here is that most wallets identified as having russian clients, is that they have all CIS clients combined (which includes Ukranian).
An Example is the Binance CIS deposit wallet https://glasschain.org/btc/wallet/73871491
Same goes for p2p exchanges heavily used in Russia AND Ukraine like Bitzlato https://glasschain.org/btc/wallet/89298296

So even saying that this wallet is "russian" is horribly wrong as you might understand.

I don't think on a blockchain level, there is anything one can do or should be doing as its at best a heuristic logic that is highly inaccurate.

the OFAC (Office of foreign asset control from the US Treasury) has a sanction list with bitcoin addresses on it and if they put addresses (who belong to russians) on the list, then they certainly will have trouble depositing their coins into any reputable exchange but thats all I know they can do.

There is no way one can be sure an address is "russian"

Not quite.
Cryptocurrency is as the name suggests, currencies that rely on cryptography (and blockchain technology) they don't have to be decentralized. We already have many centralized or semi-centralized cryptocurrencies. To name a few: XRP, USDT, BNB, ETH, Libra, el Petro,...

The difference is that decentralization makes the cryptocurrency different from traditional currencies and sets it apart. Which in turn gives it a purpose to exist. Otherwise a centralized cryptocurrency has little to no reason to exist which is why they usually are worth very little and they always continue getting dumped until they die.

Read the replies.

Wait but isn't the point of cryptocurrency is decentralization? That censorship sounds very centralized for me or probably I am missing something. That is bad for bitcoin in my eyes.

I don't know which Korea and what story exactly you are talking about but it sounds like the cases are very different. A country cracking down on its own people is very different from a second country trying to sanction the other country. The later shouldn't lead to any price rise unless we are talking about some weird situation where people of that sanctioned country had no way of buying bitcoin but from a foreign country, which I don't think is likely.

Nobody know what's going to happen but I don't think Korea can be compared with Russia that is one of the biggest countries in the world with much more resources.
I don't know anyone from Korea but I know that countries with sanctions always have higher price for foreign currency exchange.
It's easy for some central authority to block someone bitcoin address, but it's trivial for anyone to generate new address without connection to old that is blocked.
This would be the endless game of cat and mouse.

Maybe it's about time time for normal people to crack down on governments and fake elite who is controlling them all.
Than we won't have crazy decision from any side and we won't have to make war for someone else all the time.

There is an old Bitcoin documentary where one of the speakers talks about censorship.
The topic of discussion was WikiLeaks. In 2011, major financial companies and services such as VISA, MasterCard, PayPal, and some US banks cut their ties  with WikiLeaks. That meant that they could no longer receive donations. The person talks about how frightening it is when you think about what power the US government has that they can basically kill off the money flow for anyone that they consider a threat. 

And what happened? WikiLeaks started accepting Bitcoin. Despite all their efforts to stop their operations, WikiLeaks can still receive Bitcoin donations even today. 10-11 years after. Bitcoin passed a big exam and proved to be exactly as advertised - censorship resistant.

Isnt this just going to make russians have to pay a price premium for bitcoin? kind of like what happened in korea?

anytime a government cracks down on something be it drugs or bitcoin, prices soar. for the people in that country that is...

More importantly, you can pressure pools easier than you can pressure miners, specially if they are home miners not some big mining farm. And when a pool turns malicious (that is censor transactions) that kills the pool quickly. We saw what happened to MaraPool when they announced they were censoring transactions. They first got some miners disconnected from their pool, which affected their hashrate a little since almost all of their hashrate is from their own operation but then their stock got dumped hard (47% to be exact) which forced them to announce they no longer censor transactions in less than 3 weeks to rescue their crashing business.

It's impossible to censor the transactions, realistically. Let's assume the miners could understand in what part of the world the money go to, and that's a big assumption as it's nearly impossible: Miners are scattered.

Alright, so even if the United States were able to censor every transaction their citizens received, they wouldn't be able to control the network. There are also miners in Europe, Russia, China etc.; if their intention is to kick Russians out of Bitcoin, they'll fail. Initially, one Russian pool will be able to include transactions that aren't approved by the United States.

You can't censor others from using Bitcoin unless you also censor yourself by attacking to your own money.

Exactly this. Rather than a country trying to control all the miners within their borders and forcing them not to include some transactions (which would be next to impossible to enforce), while also lobbying other governments to do the same impossible task, it would be far easier and far more likely that they simply tell all centralized exchanges to blacklist certain addresses and freeze certain accounts. Bitcoin itself is censorship resistant. Centralized exchanges are not.

The Ukrainian government have had a surprisingly logical approach to bitcoin throughout this entire crisis. Accepting bitcoin donations to help fund their military and humanitarian efforts, and calling on exchanges rather than miners or the network to restrict Russia users. Although I don't agree with a blanket ban affecting many entirely innocent users, it makes a nice change to most governments who would come out with some nonsense about banning bitcoin or censoring mining instead.

$1M/Bitcoin would make life better for countries having energy sources like Russia.  Have their own mining farm to pick their transactions wil be a top priority for countries planning to use Bitcoin.  Getting around the sanction will not be a problem anymore even if there is a list of Russian BTC addresses to block.  Aiming for this kind of control over the BTC network is not possible. If it is and will worked against Russia, people will lose trust to BTC.

This is making not much sense. the only place i can place "russia" towards some addresses is on a specific binance deposit wallet like https://glasschain.org/btc/wallet/73871491
this one aparently is for russian clients. BUT ironically, ukranian too.

sending Bitcoin around is not a big deal. Cashing it out is. The Sanctions can easily just be inforced on banking level.

Russia also is not a little nation. If Bitcoin would be a serious tool to get around sanctions, we talk here hundreds of billions, probably shooting bitcoin over the 1 million dollar per coin mark and staying there.

lets not lose ourselves in speculation.

Ukraine surely does want this to happen, it seems... Not on a block mining level, but directly on the centralized exchanges: Ukraine to issue legal demands on crypto exchanges to freeze Russian accounts

Addresses are not geo-tagged, you'd have to consult a company such as Chainalysis for identity correlation between addresses which could be VERY fuzzy as private keys could be used in more than one country by someone, or (in a particularly unsafe use case), keys are shared between friends in different countries. The best they could do is try to back a mining pool such as Marathon to censor the transactions themselves by giving them more mining rigs.

Then again, this is exactly the kind of problem that exchange KYC is supposed to solve. So let the exchanges take care of matters themselves. It's not like you can easily cash out without exchanges anyway.

Sorry if I didn't include that, every node validate the transaction.
If a transaction is true, they return a success message and if false, they reject it and return a message.  

Copied that.


Learn from the Master. Thank you.

Apart from what the others already posted regarding Bitcoin, be aware that it's not like a disconnect from SWIFT is a complete isolation of the Russian banking sector. At the end of the day SWIFT is still "only" a messaging layer, so while it will make international banking more cumbersome for Russian banks, they can still process transactions by other means long before Bitcoin may come into play.

What's going to be more interesting is whether the Federal Reserve and the European Central Bank are going to cut off Russia's access to its foreign currency reserves. If they block Russian transactions of USD and EUR at the settlement layer -- which they can do since USD and EUR settlements between banks need to go through the Fed and ECB respectively -- that's when Russia's banking sector will start hurting. It will also be a reminder of the riskiness of foreign currency reserves and that having a non-governmental supranational currency in reserve may be more valuable than governments currently assume.

Every node verifies every transaction it receives, not just the first node.

That's not accurate. Whenever a new transaction is created, it is added to the pool of unconfirmed transactions known as the mempool. Miners then pick a subset of transactions out of the mempool (usually the ones paying the highest feerates) to include in the block they are attempting to mine.

Again, not correct. Miners compete to find the nonce (or other variable data) required for the hash of the block in question to be below the current target. Transactions do not have a nonce.

When you initiate a transaction, it must be authorized for evidence of spending by the real owner of the wallet address by presenting a valid digital signature. Your transaction is then spread to the decentralized Bitcoin network (decentralized nodes), the first node validates your transaction, and if it is true, it redistributes it to other bitcoin nodes until it reaches the last node, and lastly, the mining node verifies your transaction to be included in the next block of transactions. That transaction will forever remain in the bitcoin global ledger.

A Transaction >>> Digital signature >>> Bitcoin Network(Nodes) >>> Mining Node >>> Global Ledger


Blocks (blocks of transactions)  are arranged in a series of numbers, new transactions get added to new block whenever new transactions are created. Miners compete to find the nonce of that transaction, whoever has the most hash rate will likely solve the puzzle and include it in a fresh block.



Check my first illustration.


Of course, the fees determine the chances of your transactions to be included in the next block. If I decide to run my node, there is no way of anyone knowing the origination of my transaction with a well-secured VPN.


To know how mining works, check this beginner illustration on mining.^[1]

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[1] https://learnmeabitcoin.com/beginners/mining

I don't think changing the protocol would fix this. Apart from the problem of changing the fundamentals of Bitcoin, it leaves the same problem (still assuming this hypothetical scenario): exchanges won't be allowed to trade it. And even if decentralized exchanges can solve that, if it's against the law, I don't want to become a criminal because of this.

I think Royse777 summed it up nicely though:
If they could have banned Bitcoin, they would have done it by now.

It is more complicated than that. We aren't talking about an arbitrary fork or a damaging change. We are talking about a fixing change.

If we ignore the uninformed article shared by OP and focus on the underlying issue we can see that the main arguments are about one of the main principles of bitcoin which is being censorship resistant. I'd argue that if a large number of miners started maliciously rejecting certain transactions then this principle is at risk and the community has to react. Meaning even if 70% or more of the hashrate was malicious we still would move ahead with a hard fork that addresses this. Possibly an algorithm change the bricks their ASICs worth billions of dollars (if my math is right, that's 8.3 million ASICs).

We have already had a number of mining pools attempt to censor transactions based on some arbitrary "blacklist" that they came up with. See MARA pool as an example of this. What happened in reality was that they were shunned by the community and the miners, and they abandoned this idea after only managing to mine a handful of blocks themselves. Further, any transactions they did censor from their own blocks were simply picked up by other mining pools.

The difficulty in a government trying to censor transactions in this way is two-fold. First of all, they have no way of monitoring every miner operating within their borders. China, for example, have outright banned bitcoin mining, and yet we know that there is still a not-insignificant amount of hash power originating from within China. If China, with their great firewall, can't even shut mining down, then other countries will not be able to monitor what every miner is mining. Secondly, you will never reach consensus around the world for such censorship. Even if the US and EU pass some law, then Russia, China, Kazakhstan, and other Middle Eastern and Asian countries will ignore it. And there are plenty of miners who would ignore such a law, and instead hold firm to one of the founding principles of bitcoin, which is to be censorship resistant.

Assuming this scenario: They can hard fork all they want, but their fork won't be accepted in any country that enforces sanctions. So there's no point in creating the fork.

Once a transaction is included in a block, that's no longer in the mempool and the next block will include new transactions.
So, a miner includes 4000 transactions into a block and they are removed from the mempool.
The next block will be mined (by the same miner or a different miner) and will include 4000 other transactions.

Miners can include any transaction they want.

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I also don't think that will ever happen. But let's assume it will happen.

Let's say the miners following the rules own 70% of the total hash rate. Miners who own the other 30% are located in sanctioned countries and don't join the 70%.
What do you expect to happen? Will they stop mining? Or there will be a hard fork and they will create a separate chain?

Thank you. I have been hearing about Bitcoin since 2009 but mental inertia stopped me from giving a damn about it. I dismissed it as farmville money for 12 years. Never even bothered researching about it.
Finally made the leap in 2021 for purposes I'd like to keep out of this thread 

Yes, I'm using a Ledger but trying to move to multi-sig. I will have a new thread coming up on that today about questions I have regarding that.

A worse scenario would be if governments force the majority of miners to follow their wishes. Any independent miner could still include any transaction, but the blocks they'll find will be orphaned. That's basically a 51% attack of miners, forcing all other miners to follow.

I don't think it's going to happen though. It's much more likely to just ban individuals from trading with certain countries. Makes me wonder if that's going to include signature campaigns on Bitcointalk.

Thanks for your answers.

To clarify,

"Russian Bitcoin addresses" meaning addresses which have been identified by the US government / other world governments to belong to rogue countries.

I still am unclear about what happens if miners are told to censor transactions originating from certain addresses.

Let's assume that the Russian government sends a 1500 BTC transaction to China. This transaction goes to the mempool.

Q. If there are 100 miners around the world and 100,000 transactions in the mempool, do all the 100 miners pick up the same 4000 txns in the block sorted by fee? (I read online that a block has approx 4000 txns). I would imagine that all 100 miners would pick up different transactions? If so, I guess there would be different blocks. But the same txn could be picked up by different miners in different blocks. When a block is solved, do other miners drop the block they are solving if the most recent solved block contains a txn that is in their block? If so, does the other non-common txns return back to the mempool?

Now, Let's take an example of Hut8 (BTC mining company in USA).

Q. If the USA government controls these miners and tells them to not pick up transactions from the mempool that belong to the addresses blacklisted by the US government, can't a Russian miner create their own block with the transactions from the mempool ?

Q. What happens Hut8 does not pick up the txns in the block but an Australian miner does?

As stated by LoyceV, miners are free to select any transaction they want. So, a miner can ignore all transactions made from/to a certain address.

Let's say your address is blacklisted and now you want to make a transaction from that. You pay a high fee, so it's confirmed in the next block.
If the next block is mined by the miner which is censoring the transaction, your transaction won't be confirmed and you have to wait more, so a block is mined by another miner.

In the worst case scenario, the miners that are censoring the transactions own a significant amount of the total hash rate, ignore any transaction including blacklisted addresses and don't add any block to the chain including blacklisted addresses.

In this case, there will be two scenarios:
1. Other miners will do the same thing
2. We will have a hard fork

Haven't they done everything they could in the last over 10 years? Bitcoin is going nowhere, not in the near future. In fact bitcoin is the solution for the new economy which many government do not want at all especially the US. These centralized exchanges are playing a key role for government censorship. Bitcoin community needs to do something to eliminate these centralized exchanges to enjoy the true bitcoin experience.

LoyceV already said what I was planning to write. Just a little suggestions - if you have bitcoin then don't keep them in an exchange. Move them to your own wallet.

Miners maximize their income, so they pick the transactions with the highest fee (per (v)byte).

Miners create the blocks.

The keyword is "mempool". All transactions are shared with all miners, but miners are free to pick them as they please.

There are no "Russian Bitcoin addresses". Bitcoin doesn't have a nationality. But yes, anyone can pay a higher fee to get miner's priority.

Many miners are anonymous, and generally miners are quite mobile: if China bans them, they take their hardware and move elsewhere.

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There's a more fundamental problem with this: governments long wanted control over Bitcoin. If they manage to force miners to do what they want, Bitcoin is basically over.

I read this article today that talks about the possibility of bitcoin censorship.

Post this, I had some fundamental questions regarding how the bitcoin network works. Would appreciate if someone could help me understand this.

As per this article: https://tftc.io/martys-bent/issue-1170,


Questions:  

• How do transactions get included in a block?
• Are miners responsible for deciding which transactions are included in a block? I thought miners work towards finding the solution for the block.
• If so, the block must be already created ? Who created this block ?
• When I send a bitcoin transaction, does it get sent to a miner ? How does my client (such as electrum) know whom to send the transaction to?
• What other parameters are taken into consideration while including a transaction into a block for eg. Fee? If so, is it possible that Russian bitcoin addresses can give an incredibly large fee to incentivise miners to include the transaction?
• How would the government know that a USA miner would pick up the block which contains a russian address transaction? What if the block is won by someone in Australia? Can Russia mine their own blocks and add to the Bitcoin network?

 

Apologies if my questions are too basic. If there are reading materials that explain in detail how the Bitcoin network works relating to some of the questions I posted above, I'd appreciate it if you can point me in that direction.