Report scrutinizes impact of inclusions lists on Ethereum’s credible neutrality

By admin On Oct 30, 2024

In a newly released report, the Proof of Stake Alliance (POSA) and co-authors Khushi Wadhwa, Nikhil Raghuveera and Jane Khodarkovsky urge the Ethereum community to assess the legal and policy ramifications of unconditional inclusion lists, a mechanism proposed to ensure censorship resistance on Ethereum.

The paper calls for a nuanced discussion on whether such lists genuinely preserve Ethereum’s principles of credible neutrality and censorship resistance.

Ethereum inclusion lists, in essence, ensure that specific transactions are included in blocks, preventing validators from excluding them based on their content or origin. The idea is that by mandating inclusion, Ethereum can better guarantee its principles of censorship resistance and credible neutrality, which are foundational to a decentralized blockchain.

However, inclusion lists raise concerns around regulatory compliance and potential legal liabilities.

“The censorship resistant aims might be undermined by the policy and legal implications of [inclusion lists],” Raghuveera, CEO at Predicate, told Blockworks.

As they push Ethereum toward more formalized transaction processing, inclusion lists might expose validators, builders and other network actors to stricter regulatory scrutiny. The debate now centers on balancing this technical solution with Ethereum’s ethos and practical implications for network participants, particularly those in regulated markets.

The report, which was also reviewed by the Ethereum Foundation, goes beyond purely technical discussions on inclusion lists to scrutinize potential regulatory outcomes.

As Wadhwa, head of product research at Predicate, emphasized, “The paper ultimately emphasizes the critical need to define credible neutrality in order to assess all proposed changes to Ethereum.” Defining this neutrality, she added, is essential for sustaining Ethereum’s stability and participant protections.

The concept of “credible neutrality” in Ethereum largely derives from Vitalik Buterin, who has been its most vocal proponent. It’s also been expanded upon by other key figures in the Ethereum community, such as Justin Drake. Vitalik initially introduced credible neutrality as a guiding principle for Ethereum to maintain fairness and impartiality. In a decentralized environment, bias or preference for any participant or transaction could undermine trust. Under this vision, credible neutrality is essential to building an open and decentralized network where all participants have equal access and opportunities, free from censorship or favoritism.

A key consideration raised is the inherent tension between Ethereum’s censorship resistance goals and the regulatory landscapes many participants navigate. That tension is at the heart of the report, according to POSA executive director Alison Mangiero.

“The Ethereum community has certainly been having a number of debates about inclusion lists, but not along these dimensions, and then in crypto legal and policy world — which is where I hang out — people have not talked about this at all,” Mangiero told Blockworks.

This creates an imperative for the network’s developers and policymakers alike to consider how inclusion lists might impact regulated entities, potentially pushing some participants out of certain markets or introducing liability risks.

The report draws an analogy between Ethereum and TCP/IP as “a protocol that remains fundamentally neutral as to the data it transmits.”

“Regulators might recognize that targeting the Ethereum base layer or infrastructure providers is ineffective, as these entities are merely facilitating the neutral transmission of data — similar to the role of TCP/IP on the internet,” the report states.

This could bolster the argument that inclusion lists may help Ethereum’s base layer remain unregulated, focusing regulatory attention on applications instead.

“Policymakers and regulators may shift focus to the application layer, which might be seen as a more appropriate place for regulation,” noting that decentralized apps “often have centralized points of control, administration, or participation, which could make them more susceptible to regulatory oversight.”

This approach mirrors traditional regulation in technology and offers Ethereum a pathway to remain credibly neutral.

On the other hand, there are risks that regulators don’t see inclusion lists in this light. “Inclusion lists involve proposers making deliberate choices about which transactions to include in a block — something that is inherently opinionated,” the authors note.

Which way the chips fall may depend on how a potential Harris or Trump administration views Ethereum. Under the status quo, “inclusion lists may bring additional scrutiny,” they argue.

If network participants, particularly block builders, are forced out of the US or other apparently hostile jurisdictions, that would decrease Ethereum’s geographic diversity and form another threat to censorship resistance.

Further research should focus on finding a structured approach to Ethereum’s credible neutrality principles with an eye towards minimizing legal challenges, the report states. Researchers can design solutions that inherently enforce neutrality, ensuring that Ethereum treats all transactions equally and maintains a decentralized, unbiased protocol.

Finally, the report advocates for active engagement with policymakers to clarify the distinctions between blockchain infrastructure and specific applications. By educating stakeholders on blockchains’ benefits and fostering collaborative frameworks, Ethereum can support innovation while addressing regulatory concerns.

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