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On August 8th, 2022, the United States Treasury Department sanctioned the Tornado Cash smart contracts software. Tornado Cash is a fully decentralized protocol based on Ethereum, Arbitrum, BSC, Avalanche, and Optimism. This software enables private transactions on the blockchain.
The wording in the ruling by the Department of the Treasury's Office of Foreign Assets Control (OFAC) states, "all property and interests in property of the entity above, Tornado Cash, that is in the United States or in the possession or control of U.S. persons is blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked."
The sanctions are based on evidence that criminal elements, including hackers from North Korea, used the software. On the face of it, this seemed a sensible response in the face of criminality. However, look a little deeper, and it is apparent that the U.S. government went way too far with its sanctions.
One thing is to root out criminals, punish them and prevent their activity. However, it is entirely different to sanction the entire technology instead of focusing on the specific individuals causing the problem. This looks like a classic case of using a sledgehammer to crack a walnut.
In fighting the ruling, Coinbase states that the problem caused by the sanctions is twofold. Firstly, The technology has legitimate uses, and the implications of the Treasury's actions mean that completely innocent individuals now find their funds locked and access to a critical privacy tool unavailable. Secondly, Coinbase believes that the Treasury has grossly exceeded the authority Congress grants it by sanctioning a technology.
Viktor Bunn tweeted, "Today, we announced that Coinbase is funding and supporting a lawsuit by six individuals against the Treasury Department's sanctions of Tornado Cash's smart contracts, an open source piece of software."
Coinbase has been proactive in fighting unlawful activity on its platforms since the company began. The company is fully committed to fighting crime but believes strongly that this ruling is causing harm to innocent while at the same time threatening the future of decentralized finance.
Six individuals have brought the lawsuit, and Coinbase is funding their court action. These six individuals will ask the United States Court to remove them from the sanction list. They include:
Person 1. An individual who uses Tornado Cash to donate funds to Ukraine anonymously. His wallet has seen some potential attacks from airdrops. However, he avoided the potential losses by anonymizing his account. Unfortunately, he now finds his money trapped in the system.
Person 2. This early crypto trader has a significant online presence. He uses an ENS (Ethereum Name Service) name linked to his Twitter account. Again, he protected his security by using Tornado Cash. Unfortunately, his funds are now trapped.
Person 3. This man runs an Ethereum staking operation. Because someone inquired how much money he was making, he simply decided to secure his assets with Tornado Cash.
Coinbase believes that the Treasury is acting in an entirely heavy-handed manner. For example, if someone robs a bank, you don't close the bank down; you go after the robbers. This action is punishing the wrong people and threatening future security and privacy.
Congress has never given the Treasury the power to sanction open source software. The plaintiffs will ask the courts to remove the software from the sanction list. Coinbase argues that the Treasury Department has exceeded its powers and the authority of Congress and the President by going after open source technology. The Sanctions considerably expand the OFAC's authority and will harm innocent people.
This is a perilous precedent that puts the technology's future at risk. Coinbase star that they have a responsibility as one of cryptos most prominent companies to defend the industry. They are not prepared to sit on the sidelines, which is why they support this action.
It's fair to say that the cryptocurrency community will be observing this one. It is imperative that the plaintiffs win this case. This court case could adversely affect the entire future of decentralized finance. Coinbase will fully comply with its legal responsibilities but is fighting all the way. It is essential that they win.
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The much talked about Polygon MATIC cryptocurrency platform is directed and discussed to provide a thorough guide to this relatively new kid on the block
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