Marathon Mines First OFAC Compliant Bitcoin Block

Marathon, one of the biggest bitcoin mining dedicated companies in the U.S. and Canada, has mined the first OFAC compliant bitcoin block, only accepting transactions that comply with the directives of this government office. This has caused a stir in libertarian circles, that argue this can be the start of censorship in the bitcoin blockchain at a mining level.

Marathon Mines the First OFAC Compliant Bitcoin Block

Marathon, a North America-based mining company, has mined the first OFAC compliant bitcoin block yesterday, that only included KYC validated transactions and excluded transactions from addresses coming from sanctioned subjects. The block was found five days after Marathon completed the transition from its other pools to its completely compliant mining pool on May 1st. Since that day, the whole 10.37 EH/S are assigned to only mine KYC/OFAC compliant transactions.

While still somewhat new, in 2018 the OFAC started including cryptocurrency addresses associated coming from “Specially Designated Nationals” that are blocked due to its relations with criminal activities and money laundering. As an example, 20 addresses associated with the Lazarus group, a hacking North Korea-based cybercrime group were added to this list just last year, among many others.

The company explained its intention of just mining clean blocks earlier this year, with its CEO declaring they were dedicated to satisfying the need for untainted bitcoin for the institutional market in the U.S. Merrick Okamoto, Executive Chairman of Marathon, stated:

“While institutional interest in Bitcoin is accelerating, many large funds and corporations have expressed concerns over purchasing Bitcoin that may have been tainted by nefarious actors,”

Marathon uses a specially designed software for filtering these non-compliant transactions designed by DMG Blockchain called Blockseer, licensed via a memorandum of understanding on March 31.

A Looming Fungibility Problem

Marathon has upset the libertarian community, which values fungibility and the principle of censorship-resistance as the pillars of the proposition of the Bitcoin network. To some, this might be the start of a division between “clean” bitcoin produced by U.S.-based, regulated companies, and tainted coins coming from other non-compliant sources. This could affect the free exchanging of bitcoins all over the world, effectively dividing the market.

On the other hand, this might be seen as an overstatement of the problem at this stage. Marathon only controls 6% of the total hash rate in the bitcoin network, and that is unlikely to have any real effect on censoring transactions because there are plenty of miners available to receive them yet. However, the door is now open for regulations that tackle censorship at a mining level.