An Eastern Solution to the Crypto Regulatory Puzzle: Binance, Geo-Compliance, and the World of Tomorrow
Original author: Two, Fangting, Lauran, K, zhoumo
Original source:Uncommons
1. Regulation in the spotlight: the policy terrain behind the Binance incident
1.1 Hidden worries under heavy penalties
In 2023, Binance and its founder Changpeng Zhao"CZ"Zhaos fate seems to have entered an inevitable whirlpool. The investigation, which began in 2018, finally reached a major turning point in 2023.
At the beginning of the year, the U.S. Congress turned its attention to the world’s largest cryptocurrency exchange. Questions from senators such as Elizabeth Ann Warren not only focus on Binance’s financial transparency, but also involve a series of deeper compliance issues. In March, the U.S. Commodity Futures Trading Commission (CFTC) filed a major lawsuit against Changpeng Zhao and Binance. Shortly thereafter, the U.S. Securities and Exchange Commission (SEC) followed suit and filed a lawsuit against Binance with 13 major charges. The CFTC and SEC’s reasons for suing Binance include:
The CFTC charged Binance with violating the Commodity Exchange Act and CFTC regulations by illegally offering and executing commodity derivatives transactions to U.S. persons and failing to follow basic compliance procedures to prevent terrorist financing and money laundering.
The SEC accused Binance of operating a fraudulent network, conflicts of interest, lack of transparency, and circumvention of the law.
As the investigation deepens, senior team members of Binance.US begin to leave, which seems to indicate that a bigger storm is brewing. By the summer, Binance’s application for a license in the Netherlands failed, and France began investigating it. As autumn enters, the situation becomes increasingly severe. Binance was forced to stop accepting new customers in the UK, limiting its global reach and scope. The Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of the Treasury, regulates financial transactions to prevent and combat financial crime, including money laundering and terrorist financing. It cooperates with the U.S. Department of Justice (DOJ) to investigate and regulate Binance.
In November, Changpeng Zhao finally admitted crimes under U.S. anti-money laundering laws and agreed to pay $4.3 billion in fines and forfeitures to resolve a long-running investigation into Binance by the U.S. Department of Justice and other federal agencies. In the plea agreement reached by Binance with DOJ and FinCEN, Binance made a series of unprecedented compliance commitments, including establishing new procedures to deal with policies, procedures and internal controls, customer and third-party relations, anti-circumvention controls, etc. Improvements in various aspects to cope with strict regulatory requirements. He resigned as CEO and was replaced by Richard Teng.
Although Changpeng Zhao is an engineer who grew up in China, and Binance Exchange was originally established in China, as Binance moved its operational headquarters and operates globally, and the company structure is relatively secretive, China It is difficult to accurately define and pursue Binance’s legal liability. By sorting out the context of the Binance incident, it is not difficult to find that the United States has extensive long-arm jurisdiction, which allows it to exert legal influence on foreign entities that conduct business within its territory or affect its market, even if these entities operate in locations Not in the United States.
Perhaps this legal turmoil has temporarily pressed the end button, but there are already faint worries spreading:
Who will be the next Binance?
1.2 The prison of supervision and the mirror of supervision
Early Bitcoin contributor and cryptography pioneer Hal Finney once said:“Bitcoin is the first time an uncensorable financial mechanism has appeared in the world.”The revolutionary nature of cryptocurrencies in terms of being resistant to censorship stands in stark contrast to the tension between compliance and free-flowing money involved in the Binance incident.
The birth of Bitcoin was driven by distrust in the traditional financial system after the 2008 global financial crisis. As the first decentralized digital currency, one of its original design intentions is to provide a financial system that is not controlled by a central authority through blockchain technology. After Bitcoin, the launch of Ethereum in 2015 became a milestone in this period. Ethereum is not only a digital currency, but also a platform that allows smart contracts and decentralized applications (DApps) to run, greatly expanding the application scope of blockchain technology. Emerging cryptocurrencies and technologies enhance the censorship resistance of the entire crypto space. They provide users with more choices, making fund transfers and information exchanges more difficult to control by centralized agencies. During this period, cryptocurrencies began to be more widely used for cross-border payments and tax avoidance, attracting the attention of global financial regulators.
With the popularity of cryptocurrency and the expansion of application areas, anti-money laundering (AML) and user identity verification (KYC) have become the focus of regulation. For example, the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) began to closely monitor cryptocurrency exchanges and ICO (initial coin offering) activities to ensure that these activities comply with existing financial regulations.National legislation on cryptocurrency has also begun to differ significantly, which has increased uncertainty and complexity in the cryptocurrency market.
As the worlds largest economy, the United States regulatory attitude toward cryptocurrency is considered a bellwether for global regulatory trends.In the United States, cryptocurrency regulation is managed at the federal level by various agencies, including the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Federal Trade Commission (FTC), Department of the Treasury (through the Internal Revenue Service (IRS)), Currency Office of Comptrollers (OCC) and Financial Crimes Enforcement Network (FinCEN). Meanwhile, regulation of cryptocurrency sales depends on whether the transaction is considered a sale of securities under state or federal regulations, or is classified as a money transmission under state law, which would classify the seller as a money services business (MSB) at the federal level. . Additionally, the CFTC oversees market manipulation issues in cryptoassets that are classified as commodities.
In emerging markets and developing countries, such as Asia, Africa and Latin America, cryptocurrencies are used as a catalyst for economic growth.Particularly in parts of Africa and Asia, cryptocurrencies offer a means to bypass the traditional financial system and increase financial inclusion. For example, many countries in Africa are leveraging cryptocurrencies for cross-border payments and transfers to address inadequate banking systems. At the same time, cryptocurrency is also seen as a tool to promote economic growth and innovation, and young people and entrepreneurs in countries such as Nigeria are conducting international transactions and investments through cryptocurrency. In countries such as Venezuela, cryptocurrencies are used to circumvent international sanctions and are also used by non-governmental organizations and dissidents to bypass government financial controls.
In the far east, China’s attitude towards cryptocurrencies has been known for its strict regulation.In 2017, the Chinese government banned domestic initial public offerings (ICOs) of cryptocurrencies and shut down all cryptocurrency exchanges, citing reasons to reduce financial risks and combat financial fraud. This policy move forced many cryptocurrency exchanges operating in China to relocate overseas, such as Binance, Huobi, etc. At the same time, China was once one of the worlds largest Bitcoin mining countries, but due to environmental and energy issues, China began to impose strict restrictions on cryptocurrency mining in 2021. This has led to significant changes in the geographical distribution of global cryptocurrency mining activity, with many miners relocating to locations such as the United States, Central Asia, and Eastern Europe.
In the context of global political economy, the Binance incident is like a butterfly flapping its wings, and the chain reaction it has caused in the crypto world is still unseen. In a narrative that transcends borders and cultures, the censorship-resistant nature of cryptocurrencies is thrust into the global spotlight, causing subtle ripples in political and economic waves with every beat. Censorship resistance is both its shield and its sword. It protects individual privacy and freedom and frees financial transactions from intervention by central authorities, but it also raises regulators’ concerns about financial security and stability.This dialectic about freedom and order, innovation and responsibility is like a mirror, reflecting the most profound dilemmas and possibilities of the cryptocurrency era.
2. On-chain censorship: the intersection between technology and politics
2.1 The heart of regulation and censorship resistance
Different from the regulatory policies formed by the dynamic balance of geopolitics, national economy, civil society and other aspects of various governments,On-chain supervision is located in a battleground for military strategists. It is the most direct area where regulatory policies exert influence and produce effects. It is also the core area that open source values and technology supremacists want to defend.
What is on-chain review? In a Bankless podcast called Ethereum Uncensored with Justin Drake, Justin Drake defined two different types of censorship: weak censorship and strong censorship. Weak review means that some blocks choose not to include the transaction after review, and other blocks that do not review it accept it. A transaction is finally included in the chain after a delay; this delay will lead to a decline in user experience. In the case of strong censorship, transactions will never be included on the chain: the network is taken over by a majority and censors every transaction, which can also be called a 51% attack. If we follow Justin Drakes definition, most of the discussion in this article is how to resist weak censorship.
Against this background, the history of on-chain supervision is also a history of balance and compromise. Let’s first read some of the most direct examples of on-chain regulation: In addition to CEX, DeFi has always been one of the forefronts of regulatory pressure (“When regulators come knocking, DeFi answers the door.”). Uniswaps response to regulatory pressure reflects the typical symptoms of regulatory pressure faced by the DeFi community: On July 23, 2021, Uniswap issued a document announcing the delisting of certain tokens [12], using very cautious wording in the official document: The team emphasized that these tokens only account for a small portion of Uniswaps total transaction volume; the blocking behavior is consistent with the behavior taken by other DeFi interfaces; at the same time, blocking front-end interactions has no impact on the open source Uniswap interface code behind it or other entry portals (including local running) No effect.
Despite highlighting these three points in the blog post, Uniswap still faced skepticism from the community. The reply under the tweet that received the most upvotes and attention read, “This blog post does not adequately explain why these tokens were removed from the front-end interface. Regulation is mentioned, but understanding what kind of regulation it is is important for readers and the community Would be helpful. Many Synth tokens appear to have been removed (before the article was seen by the public). (@LefterisJP)
This reply well represents the community’s views on Uniswap issuing such a decision without fully communicating with community members holding $Uni. This was feared to set a bad precedent in dealing with SEC regulation. The crypto community has always been sensitive to regulation, and the front-end is the part most susceptible to compromise under regulatory pressure: outside of Uniswap, Balancer once hid a $20 million liquidity pool; Metamask and Infura both blocked specific wallets based on the Tornado Cash review address.In the next section, we will start from the front end and analyze the regulatory pressure that each operating link in the chain may bear one by one.
2.2 Trust can be reviewed
Every trust vector is a trust vector. Vitalik made this judgment at the censorship.wtf conference in Istanbul. The title of his keynote speech is Strengthening the Ethereum Ecosystem from Different Levels, and covers six aspects including the interface layer, centralized node provider, L2 sequencer, Cross-L2 bridging, P2P layer, and social layer. Describes the censorship attack that the Ethereum ecosystem may suffer.
From this, we can sort out the possible regulatory censorship threats that Ethereum may encounter in the chronological order of blocks and transactions. First, outline the process: the user interacts with the wallet, and the process occurs on the front end; the next step is that the transaction is temporarily stored in Mempool, and the Searcher searches the Mempool; after that, we come to the block generation part. Under the PBS framework, the Builder will The blocks are packaged and sorted. Before seeing the main content of the block, the Proposer accepts the Builders bid and finally puts the transaction on the chain after signing.In this process, any link may become the subject of supervision.
2.3 Overview of Ethereum on-chain censorship
In the front-end part, which users interact directly with and are best modified and controlled, there have been cases of compromise with real supervision such as Uniswap and Balancer mentioned above. Since the front-end does not directly affect the interaction with the contract, the problem is more a matter of technology popularization. There are many solutions: such as decentralizing the front-end, or using aggregators such as Zapper and 1Inch; or open source front-end code (Uniswap has Open source); use IPFS to host the front-end domain name for static content, The Graph to host the front-end for dynamic content such as social media; and use decentralized domain name services (ENS, etc. instead of DNS).
The front-end issues were followed by crises lurking at node service providers such as Infura.As one of the largest RPC service providers, Infura is the access point for most DApps to access real-time data on the Ethereum chain, greatly reducing the cost of developing DApps and accounting for more than half of the market share. In March 2022, Infura responded positively that due to US regulatory policies, it restricted the use of MetaMask in Iran, North Korea, Cuba, Syria, Crimea, Donetsk and Luhansk regions of Ukraine.Similar service providers, such as Pocket Network and Ankr, have already marked a clear decentralization process in their roadmaps;Infura also stated in September 2022 that it would launch a decentralized version at the end of this year (2023). Given its important position in the ecosystem and the possibility of single points of failure, the potential impact of Infura being controlled or attacked is also huge. . Faced with centralized RPC endpoints like Infura, one possible solution is to build a lightweight client, that is, build a local version of Ethereum and make requests to those full nodes. This is an approach that bypasses the control of Infura, is more personally sovereign, and reflects the non-custodial native spirit of the blockchain. At the same time, the popularity of light clients is one of the things that Ethereum has been promoting, and it is important for the decentralization of the entire Ethereum. The degree of culturalization has an important impact.
We have come to the next step: the supervision of cloud service providers during the node hosting process. According to data from Ethernodes.org, about 60% of the nodes on the Ethereum network are run through cloud hosting (such as Amazon). The German company Hetzner once posted in 2022 that they were not suitable for hosting Ethereum nodes, although nearly 15% of Ethereum nodes were already hosted on Hetzner at that time. While theres no outright ban, pressure from cloud hosting providers is still hanging over their heads. In theory, AWS, Hetzner and Google Cloud cloud service providers can stop services at will. But what is slightly reassuring is that the exit costs and migration costs of node hosting are relatively low and will not be locked to a specific cloud server. After The Merge of Ethereum, it will be easier to create your own nodes, such as through Raspberry Pi and Avado (Plug Play solutions), etc. It is not an irreversible process.
On September 15, 2022, The Merge announced that Ethereum has officially moved from the POW era to the POS era. The name of the blockchain verifier has also changed from miners to pledgers. Ideally, pledgers will assume the role of neutral participants in verifying blocks. character of. As of November 2023, 55% of Ethereums 1 million staking verifiers come from 6 companies, namely Lido, Coinbase, Kraken, Biance, Bitcoin Suisse, and Staked us [13], with Lido accounting for the first place The company currently has a total of 29 operating nodes, but 29 seems to be far away from the expected decentralization threshold, which has triggered concerns about the centralization of validators.
The picture shows the proportion distribution of the top 55% of pledgers. Image source: Alon Muroch’s speech at the censorship.wft conference
In an article discussing the failure of ETH 2.0 validators, CarlBeek and adiasg proposed the concept of SSV (Secret Share Validator), which later developed into a technical solution for current validator centralization, DVT (Distributed Validator). Validator Technology (decentralized verifier technology), the core point is to fragmentally distribute private keys to different verifiers, so that one node can be verified by multiple parties, thereby reducing the risk of censorship caused by excessive concentration of verifiers. Now a network based on DVT technology is the SSV network, which is becoming the Ethereum infrastructure under the POS mechanism.Lido has conducted DVT tests multiple times since October 2022, and announced on November 15, 2023 that the proposal to enable a simple DVT module has been passed, believing that this proposal may significantly diversify Lido node operators and promote Ethereum. Future innovations for the staking ecosystem.”
After the issues of front-end, node services, node hosting, etc., the next step is to enter Mempool, the database of pending transactions. Here we also come to the in-depth gaming zone with MEV games as the core.In the process of block sorting, packaging, manufacturing, verification, etc., if a mechanism that can achieve a delicate balance is not formed, various actors will be on the verge of abusing their power and obtaining excess profits, and the profits will eventually flow to those with the ability to control more complex algorithms and more. A centralized party of computing power. This is what the on-chain ecology does not want to see. The PBS proposal (Proposer-Builder Separation) is being proposed under this situation. It intends to create a dedicated Builder role (or, in other words, separate the Validator role into two independent roles), and combine the ranking rights, bids and signatures. chain separation.
Due to the technical complexity of PBS, it will still take several years to be applied at the protocol layer. Before PBS is fully implemented, MEV-Boost (developed by Flashbots) provides a temporary and effective solution by adding an additional Relay. MEV-Boost allows Validators to obtain data from the transaction order flow and extract it efficiently, and submit the most profitable blocks to the Ethereum network through bidding, thus helping those validators who do not have the conditions for the MEV extraction algorithm, so they are often used It is believed to create a more equal and transparent profit market and reduce the MEV variance captured by each Validator. The other side of the matter is that according to recent research by Toni Wahrstätter, a researcher at the Ethereum Foundation (Toni has always been highly concerned about censorship issues and is the maintainer of the censorship.pics website), as of this writing, about 72% are now considered censored ”, while this figure will be approximately 25% in November 2022. This means that a considerable portion of Ethereum’s relay blocks are reviewing Tornado Cash transactions according to OFAC standards. However, this is not a strong review that cannot be changed, but a weak censorship that delays the time and prolongs the process. In the end, there is still a high probability that it will pass those non-review relays and go to the chain.
Nor does PBS application mean that all regulatory issues are solved in one fell swoop. In terms of censorship resistance, we have also seen other solutions on the roadmap. The basic idea is to limit the power of different actors in the block creation process. One is to limit the power of the Builder: that is, to formulate a censorship resistance list (crlists), which empowers the Proposer to publish lists that believe may be under review, and a further Forward Inclusion List, which resists review by making the Proposal force the inclusion of certain transactions. System (not forcing the Proposal to directly include certain transactions, but allowing the Builder to force the use of underused space when there is excess block space). This is also called a Hybrid PBS.
Another restriction scheme is for Proposer, namely MEV Smoothing. The main idea of MEV Smoothing is to only allow the Proposer to propose the blocks with the highest bids. If the Proposer does not propose the most profitable blocks that have been built for them, it means that it is very likely that they do not want to make more profits, but for other reasons. The reason is most likely due to censorship. The smoothing of MEV Smoothing is to make the MEV profits of all Proposers equal and eliminate the Proposers censorship incentives in a completely efficient market.
In addition, in the MEV gaming session, encrypted Mempools are used (the users transaction content and sending/receiving addresses are encrypted before entering the mempool, and are only decrypted on the chain), calling for full altruistic self-building (no outsourcing) Block construction), etc. are also one of the ways to fight against censorship. The solution of the former is not yet mature, while the latter is a part outside the system. What is more considered is how the spirit of blockchain fundamentalism affects anti-censorship. . But Ethereum is not a pope that can develop healthily relying on the spirit of fundamentalism. We still need to work tirelessly on the mechanism.
3. Censorship beyond Ethereum: The ubiquitous Sword of Damocles
Looking beyond Ethereum to the encrypted land, what questions and answers will there be in resisting censorship? Among the clusters of public chains, we look towardsThe Bitcoin network, which has the longest history of being censorship-resistant, and Solana, which has been controversial in recent years.
On November 20, 2023, a Bitcoin network developer 0xB10C published an article titled Six OFAC Sanctioned Transactions Missing: Was it the Asian mining pool that first succumbed to US sanctions? The article made the topic of Bitcoin network censorship resistance attract peoples attention again. The blog post mentioned that F2 Pool, a Bitcoin mining pool located in Asia, filtered four transactions sanctioned by the United States. F 2 Pool Lianchuang Chun later responded on Twitter (and later deleted): “Why are you surprised that I refuse to confirm the transactions of those criminals, dictators and terrorists?I have the right to refuse to confirm any transaction, dont I?Meanwhile, Changpeng Zhao (founder of Binance) sells his soul for money. He deserves it. “The words pointed to the recent Binance incident and also showed a strong sense of censorship.
The F2 Pool involved in the incident is currently the third largest Bitcoin mining pool, accounting for about 14% of the Bitcoin blocks mined in the past year, ranking third, behind Foundry USAs 30% and AntPools 22%. Mining pools are the gathering point for collaboration in the Bitcoin network, and the proportion of leading mining pools (such as the previous data) and the geographical distribution of miners (as shown below) both reflect the degree of centralization of the Bitcoin network. The resource threshold required to create a mining pool is high and the physical nature of mining pools makes migration difficult. Therefore, mining pools have become a monopoly industry and a part of the country that is prone to regulatory scrutiny.
Image source: The Bitcoin Mining Network by coinshares, data as of January 2022.
There are currently some solutions to the centralization of mining pools. For example, miners can easily switch mining pools. If a mining pool faces the pressure of supervision and review, miners can switch to an uncensored mining pool and continue mining without being affected; and The decentralized mining pool protocol Stratum launched v2 to further solve the problem of mining pool centralization, allowing miners to choose the transaction set (previously the transaction set was in the hands of the mining pool) and improve the degree of decentralization. However, in Stratum v2 mode, miners’ operating costs increase and profits decrease, making sustainability difficult to guarantee.
Look at Solana again. From the Ethereum Killer at the beginning of its debut to the later Downchain and Reconstruction in the Post-FTX Era, Solana was born in the era of the rise of new public chains. However, due to the sensational FTX collapse and multiple downtime events, Solana triggered a People are worried about Solanas centralization and stability, and questions about whether it is censorship-resistant have followed.
Starting from the sword of Damocles that hangs over all networks—validator centralization—we can get a glimpse of the current state of the Solana network. In October 2023, the Solana Foundation routinely released a validator health report. The figure below shows the number of existing validators/Satoshi coefficients/clients of Solana and some chains, with Solana having the most verification nodes and the highest Satoshi coefficient (one of the indicators of decentralization).
The potential risk for validators is that the operation of Solana verification nodes requires high-performance machines, so many private individuals will rent third-party services, causing the third party to hold a large proportion of nodes and may launch attacks on the network, such as in November 2022 Server provider Hetzner appeared to block Solana nodes last month. Solanas response to this is to split and monitor data based on the Autonomous System Number (ASN) of major data centers and publicly available data, encouraging users to transfer pledged funds to other data centers to reduce the impact of a single entity on the blockchain. Control; at the same time, validators on Solana are divided into different groups. Each group has a leader who is responsible for deciding the order of transactions. All validators in the group vote to determine the validity of the transaction. Each validator takes turns serving as leader, ensuring security against a single malicious actor.
Despite these measures, the proportion of Solana staking nodes in the United States increased significantly between March and September 2023, from 23.5% to 29.2%. Decentralization has a long way to go.
4. Cryptozoological Anarchy: Tomorrow’s Third World
4.1 Ethereum, “Exit from the United States”
Geopolitics is the elephant in the room. Since the creation of the world, cryptography has been the art of emperors and has been widely used in war intelligence. Blockchain, as a product of the counter-culture hippie movement and the open source Internet movement, is a battle flag against the hegemony and monopoly of the old world. Bitcoin originates from cypherpunk, an ideological and technological movement that originated in the late 1980s and early 1990s. It aims to use cryptography to protect privacy and personal freedom and combat government surveillance and data collection by commercial organizations. It is not only a breakthrough in cryptography, but also a symbol of hackers and anarchy. Most of the participants remain anonymous. They are mostly technology enthusiasts and do not care about the identities, backgrounds or geographical locations behind them. These people came together to share a radical vision of traditional political and economic systems.
However, from the initial radical movement to the present, with the penetration of talents and the advancement of compliance, blockchain has become a technology track with the Ethereum ecosystem as the core and European and American entrepreneurs as the leader. Shaking hands with Silicon Valley capital, the hostility of the past has No longer, the topic revolves around technological innovation. On the one hand, as an industry matures, it will inevitably go through a curve from niche to mainstream. More projects have adopted the path of traditional fund financing in the primary market, and the fuel of capital has made the blockchain entrepreneurial market more prosperous. But at the same time, because VC is mainly located in areas with stronger economic strength, resources have begun to be poured into projects in these areas on a large scale. On the other hand, even within the industry, there is polarization between the currency circle and the chain circle. The Ethereum ecosystem focuses on technical issues such as capacity expansion, vigorously develops L2, ZK and other directions, and attracts many technical elites with professors or PhD backgrounds from prestigious universities, mainly living in the United States. But on the other hand, the DeFi track, which has more financial attributes, and the token market of major copycat projects belong to the grassroots and silent majority who want to change their destiny.
It is worth mentioning that a16z, the leading capital player in the crypto primary market, is an out-and-out American fund. Its perspective is particularly patriotic, not only calling for Make Ameica Great Again but also advocating technological optimism and construction pragmatism with American characteristics. As early as the 2020 epidemic, Marc Andreessen of a16z discussed how to use build to solve problems in the countrys social and political system from the perspective of the United States. They took substantial action 2 years later and established a $500M+ fund called American Dynamics to restore an American dream. The general background of this narrative is the Thucydides Trap between China and the United States - the counterattack from the United States after Chinas rise, which has occupied the mainstream position in American politics and economy since Trump took office. Populism came to power, cosmopolitanism declined, and countries went their own way. It is unimaginable that an industry that was supposed to end national hegemony was captured in the hands of a patriotic fund.
A so-called crypto elite, Vitalik Buterin said in a recent interview with the well-known African activist Magatte Wade, usually Americans who have some Chinese friends, or Chinese people who have some American friends, rarely hear We all have African friends.” This is a situation that people tend to avoid talking about, but there is a group consensus. In the era of Bitcoin and exchanges, the Chinese have an advantage by relying on their financial intuition. In the Ethereum era, the United States, relying on its top technical talents, firmly dominates the discourse on industry development. The blockchain, which was born to subvert the traditional paradigm, has gradually shown the Matthew effect between elites and grassroots. From this point of view, blockchain, like all industries, is gradually following the rules of the traditional world.
But we know that this is not a vague industry, it clearly has edges and corners. The world is in turmoil, and various forces are vying for power in the Central Plains. In this struggle, undercurrents are surging. Cryptocurrency has become a third party in the power game between countries, and it seems that it has never left the scene.From the day Ethereum was born, it has been burdened with complex international relations: an elite team from North America, founders with immigrant status, developed products in Europe, went to Asia to expand markets, accepted scrutiny from the United States, and supported communities in Africa.We will look back to the past to look forward to the future, peeling back the cocoon to the core to understand Ethereum’s current community strategy of “entering Asia, Africa and Latin America”.
4.2 Ethereum: Why Asia, Africa and Latin America are needed
Ethereum was proposed by Vitalik Buterin. He published a white paper in 2013 outlining the concept of a universal blockchain that would not only support Bitcoin-like transactions but also run so-called smart contracts. The main founder, Vitalik Buterin, was a precocious young man who grew up in Toronto, Canada and received education at the University of Waterloo. At that time, his vision was supported by many professionals, including Gavin Wood, a PhD in computer science from the UK, and Joseph Lubin, who graduated from an Ivy League school and worked in an investment bank. Its founding team has a total of eight members, all of whom are white men, and the active core contributors are from Canada, the United States and the United Kingdom. Except for Vitalik, the team is mostly experienced and accomplished middle-aged professional experts. It can be said that Ethereum’s team composition is in line with people’s imagination of first-world elites.
But Vitalik is not a child born and raised in Canada whose vision is limited to developed countries. He was born in Kolomna, Russia, in 1994. His parents were computer scientists of Russian-Ukrainian background. When he was six years old, his family immigrated to Toronto. His immigration status left a deep mark on him. Vitalik showed his talent in mathematics at a very young age, but unlike other geeks who were intoxicated with technology itself, his life experience gave him a sensitivity to political economy. This is why, after exploring many programming fields, Vitalik fell in love with Bitcoin in high school and chose it as his lifelong career:I discovered Bitcoin when I was halfway through high school, and what fascinated me about it was that it combined all my interests: mathematics, cryptography, computer science, the open source movement, and political economics.. After growing up and becoming a thought leader, Vitalik has not shied away from expressing his political opinions and has been using his personal influence to strive to speak out for disadvantaged countries. After Russia invaded Ukraine in 2022, Vitalik publicly condemned Russias aggression and actively supported Ukraine, donating cryptocurrency to support projects in the country. On the first day of the intrusion, he tweeted that Ethereum is neutral, but I am not and called the Russian attack a crime against the people of Ukraine and Russia. RT (Russian Today, Russia Today) Editor-in-Chief Margarita Simonyan declared that those who are ashamed of Russia’s actions in Ukraine are not Russians at all (“If you are now ashamed of Russia’s actions, don’t worry, you are not Russian.” ), while Vitalik said Fuck you (иди на хуй) in response to Simonyans tweet. At the same time, Vitalik has also supported several projects to help Ukraine, including UkraineDAO, through cryptophilanthropy. His father, Dmitry, who was born in the Soviet era, has publicly condemned Russian atrocities and is also one of the signatories of UkraineDAO, a multi-signature encryption safe in which he participated. As the soul of Ethereum, Vitalik has also fully integrated his belief in decentralization and anti-totalitarianism into the technical architecture of Ethereum.
During the entrepreneurial period of Ethereum, they started the life of digital nomads. At that time, Vitalik insisted that Ethereum should be a non-profit organization with no hierarchy and no commercial nature. They compared the tax policies of various countries, and finally registered Ethereum in Switzerland as an NGO legal entity, and rented a cabin base there nicknamed Spaceship. A group of people lived together and developed it day and night. Ethereums public chain has determined its core products and founding team at the spaceship base. After that, the C++ language technology team headed by Gavin Wood was based in Berlin, Germany, while the Go language technology team headed by Jeff Wilcke was based in Amsterdam, the Netherlands. The development of Ethereum was still mainly based in Europe. Also born in the Berlin office, Ethereum launched its first DevCon (developer conference) and has since started its community summits all over the world. After the Ethereum crowdfunding was successful and core development was completed, Vitalik led the team to develop international communities around the world. At that time, it was the peak of blockchain development in Asia. Markets such as China, Singapore, South Korea, and Japan were all booming and became the key battlefield for Ethereum. Vitalik also experienced personal growth and began to no longer reject commercialization. In October 2016, Vitalik registered a for-profit legal entity in Singapore, announcing a new stage for Ethereum.Looking back at its past, it is not difficult to see that Ethereum grew up in Eurasia and never chose to base itself in the United States.
An important hurdle that needs to be overcome in the early stages of Ethereums startup is the SEC, the U.S. Securities and Exchange Commission.While they were preparing for crowdfunding, the SEC had just convicted Bitcoin entrepreneur Erik Voorhees of selling illegal securities, which undoubtedly sounded the alarm for the Ethereum team. Their lawyers in Switzerland argued for Ethereum’s non-security status due to the decentralized nature of crowdfunding, but the SEC was clearly a more formidable opponent. At this critical moment, legal counsel Steven Neraoff came up with an idea and proposed that Ethereum is actually a product rather than a security on the grounds that users need to pay for computing power (Gas Fee). This battle was a great success, and Vitalik excitedly stated in his blog post: We did not give up on the US market in the end, great!. However, what is interesting is that many years later, Neraoff, the lawyer who helped Ethereum enter the United States through legal means, came forward and used recording evidence to testify that Ethereum had communicated with the SEC to avoid compliance, and the matter became confusing again. Although Ethereum is registered in Europe and Asia and is active all over the world, it is not essentially an American company. However, due to the criticized long-arm jurisdiction tradition in the United States, that is, if its business activities involve the United States, Users and governments have the power to impose international sanctions, so US review transcends borders and is everywhere.After FTX and Binance, people are increasingly aware that the long-arm jurisdiction from this world police is threatening the foundation of this industry - US regulation is the Damocles hanging over Ethereum. sword.We can conclude that any blockchain company will run the risk of being captured by the US government, which means that the founder will be jailed, data and capital will be confiscated, and the decentralized blockchain will become a consortium chain of an American company. Combined with the origin of Ethereum, it is not difficult to see that it will have North American thinking and at the same time, it will most closely follow anti-hegemonic fundamentalist beliefs.In other words, it can understand the US strategy, so it always maintains awareness and vigilance against censorship.
Therefore, Ethereum needs Asia, Africa and Latin America. Not only does its products need to be put into practice, but also it needs to maintain a certain distance from the United States geopolitically. A natural internationalist should not be captured by individual countries. Among many blockchain projects, Ethereum has achieved a high degree of decentralization of verification nodes at the technical level at the expense of some performance. Not only that, it was also obsessed with building a global Ethereum community in its early days. On its official website, you can see these bold words in the community activities column: Every month, there are major Ethereum events around the world. ”. When Vitalik was studying, he applied for a gap year to travel around the world and visit Bitcoin communities around the world. He also accumulated this experience into Ethereums unique world community and monthly summits where the sun never sets, triggering the imitation of many subsequent projects.
4.3 Asia, Africa and Latin America: Why we need Ethereum
As a technical ecosystem, Ethereum still maintains neutrality in political speech, but Vitaliks own views will be more distinct. Since he founded Ethereum, he has no longer stopped in any city, wandering between countries like a migratory bird. In an interview with CNBC in September, he revealed further caution about geopolitics: Three years ago, there were a lot of countries that I would have loved to visit, but now I feel more worried about them. Even the mainstream Countries that I think are still relatively normal - Im more worried about those places as well.” With his personal growth and the development of the industry, Vitaliks political sense has quietly become more acute.
One example is the Zuzalu co-living experiment launched this year by Vitalik. Zuzalu is located in Montenegro, a young country that has just broken away from Yugoslavia and has been independent for only ten years. Due to the instability of the new regime and its weak status without currency printing sovereignty (Montenegro belongs to the Eurozone but not the EU), all this has led Montenegro to seek more radical political and economic chips. Local politicians came into contact with Vitalik through connections and quickly provided him with nationality to show their sincerity, brewing more in-depth policy exploration in the encryption field. Vitalik also took action to give back to Montenegro, placing this experiment where two hundred people were invited to live together for two months. However, from the Do you know Montenegro session at the opening ceremony and the raised hands on site, it can be concluded that the vast majority of practitioners have never heard of this country before participating in Zuzalu. This does not prevent Vitalik from enthusiastically supporting local crypto education, and even organized a group of people to visit universities in the capital to patiently explain the cryptocurrency industry to students.
Also in Zuzalu, Vitalik also showed his enthusiastic support for the African community. Not only did he personally invite many African community leaders, he also took the initiative to try to solve the visa problem for Africans to leave the country (which ended in failure due to being overly complicated, which became Vitaliks biggest worry in the process of organizing Zuzalu). In fact, as early as 2020, Vitalik had publicly expressed concern about the visa issue, once expressing on Twitter: The global inequality in travel convenience is still very serious. I look forward to Africans, Asians and all other The day when people can travel around the world as easily as people in our developed countries. In February of this year, he also made a high-profile appearance in many African countries, using his own actions to support crypto community projects such as Afropolitan and Borderless Africa that aim to build consensus in Africa.
Taking Montenegro and Africa as cases, we can further analyze why Asia, Africa and Latin America also need Ethereum. In the Montenegro scenario, it represents a country that is weak in the political landscape and wants to use cryptocurrency as a bargaining chip to play games with other countries. Similar countries include Latin American countries that have experienced severe local currency inflation under the hegemony of the US dollar, such as Venezuela, which has set Bitcoin as its national currency, and Honduras, which has opened special economic zones that support cryptocurrency. There is also Japan, which almost collapsed after the bubble crisis and missed the Web2.0 Internet, so it wants to overtake in the Web3.0 encryption era. According to Reuters, Argentina’s inflation rate this year has reached 124%. In its fierce election campaign this year, Javier Milei, a self-styled anarcho-capitalist, became president. Grayscale issued a statement saying that Milei’s government would pave the way for the development of Bitcoin in Argentina, and tried its best to promote the encryption of this major South American country. The future of money. In this type of country, it is the politicians who want to promote the encryption industry to take root in the country. What they want to gain is a future possibility.
In the scorched earth of the abject South, a legacy of colonial past government incompetence and police brutality, corruption is endemic. The peoples source of income relies largely on their African-American family members in the diaspora, and the huge exchange rate difference makes remittances a substantial material guarantee. However, the backward financial system and government agencies that enrich themselves have forced African people to prioritize decentralized payment methods, and cryptocurrency has become their ideal solution. Therefore, in terms of market penetration, African countries rank high. For example, in Statistias 2019-2023 data, Nigeria has maintained the first place for many consecutive years. The reasons behind this are also mixed with the highly devalued local currency and the high proportion of young people in the population (53.7% of Nigerians are aged 15 – 65 years old). Out of concerns about capital outflows, the Central Bank of Nigeria issued a ban on cryptocurrency in February 2021; at the same time, in order to solve the problem of currency being unable to be withdrawn, it actively promoted the launch of its own local digital currency to meet urgent needs. These actions aroused peoples dissatisfaction, and large-scale protests and riots broke out across the country many times. Even if the government has explicitly banned the circulation of cryptocurrency, it still cannot prevent people from using it widely. In this type of country, the people who want to promote the crypto industry to take root in the local area are people who desire a decentralized currency out of their real survival needs.
5. Encrypted black eyes: The East is white
In the blockchain field, compliance and censorship resistance are two important and challenging issues. Gavin Wood, co-founder of Ethereum and founder of Polkadot, once said that blockchain technology offers huge potential in terms of decentralization and transparency.
Resistance to censorship and decentralization are a basic consensus and are ranked first in importance. It ensures that all transactions are open and transparent, and no one can modify or delete transaction records. This kind of transparency gives people inside it an irreplaceable sense of security. Google released the BeyondCorp: A New Approach to Enterprise Security white paper in 2014, describing in detail how they reconstructed their network security architecture and protected user data based on the Zero Trust model - the Zero Trust principle emphasizes no Any system, internal or external, should be trusted by default and its identity and permissions should always be verified. This project not only improves the transparency of network security, but also gives users greater control over their data.
Openness, transparency, and no monopoly authority are extremely important in modern business.
With the recent resignation of CZ and the change of ownership of Binance, it is difficult to say that blockchain can still give users peace of mind in the United States - when a state machine waves its arms, the hard barrier that once seemed to protect everyone equally can easily be There were cracks.
We also found that Ethereum’s community power in Asia, Africa and Latin America and China’s unique position seem to be the starting point for the development of new possibilities.
In Asia, Africa and Latin America, the international power game is complex and ever-changing. Whether in developing countries or underdeveloped regions, there are many intertwined interests, such as the interests of politicians, national economic interests, peoples interests, etc. Former South African President Nelson Mandela has emphasized the importance of education throughout his life. His famous saying Education is the most powerful weapon to change the world is widely circulated as a blockchain that brings technological philosophy and social thinking changes. Technology is also a form of education, from affecting individual individuals to gradually affecting entire communities. It is very likely to accelerate or even change the political and economic structure of these regions in such a complex environment.
In China, although the government is cautious about Web3, it has a large Internet user base, strong technical strength, and policy support from Hong Kong and other places, providing huge imagination for the development of Web3 with Eastern characteristics.
In the seemingly boundless policy spider web, Asia, Africa and Latin America are low-lying areas that are rarely touched; the global digital economy is full of stars under the macroeconomic night, and Asia, Africa and Latin America are dark stars with enough burning energy; the flood of information Amid the high-speed surge, Asia, Africa and Latin America have just begun to take shape.
The road may not be bright, but the path may lead to darkness.A new flame needs to find a new wilderness for itself. Time is still going on, and the black eyes of the crypto natives are always looking for the first transparent dawn to light up. And will the next dawn light in the east?
Acknowledgements
The writing of this article received early reading and revision comments from Kenway, Guo Yu and Nicholas. Thank you for their help in making this article more accurate and smooth.
About Uncommons
Uncommons is a public welfare community voluntarily organized by a group of Web3 enthusiasts, social builders and Internet citizens dedicated to the construction of public goods. It was formerly known as GreenPill Chinese Community.
