Blockchain Transaction Censorship: (In)secure and (In)efficient?

The ecosystem around blockchain and Decentralized Finance (DeFi) is seeing more and more interest from centralized regulators. For instance, recently, the US government placed sanctions on the largest DeFi mixer, Tornado.Cash (TC). To our knowledge, this is the first time that centralized regulators sanction a decentralized and open-source blockchain application. It has led various blockchain participants, e.g., miners/validators and DeFi platforms, to censor TC-related transactions. The blockchain community has extensively discussed that censoring transactions could affect users' privacy. In this work, we analyze the efficiency and possible security implications of censorship on the different steps during the life cycle of a blockchain transaction, i.e., generation, propagation, and validation. We reveal that fine-grained censorship will reduce the security of block validators and centralized transaction propagation services, and can potentially cause Denial of Service (DoS) attacks. We also find that DeFi platforms adopt centralized third-party services to censor user addresses at the frontend level, which blockchain users could easily bypass. Moreover, we present a tainting attack whereby an adversary can prevent users from interacting normally with DeFi platforms by sending TC-related transactions.