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Defending Privacy in Crypto. Tl;dr: Coinbase is funding a lawsuit… | by Coinbase | Sep, 2022

Tl;dr: Coinbase is funding a lawsuit introduced by six individuals difficult the U.S. Treasury Department’s sanctions of the Tornado Cash good contracts and asking the Court to take away them from the U.S. sanctions checklist. The sanctions exceed Treasury’s authority, hurt harmless individuals, take away privateness and safety choices for crypto customers, and stifle innovation.

By Brian Armstrong, CEO and Cofounder

Today we’re saying that Coinbase is funding a lawsuit introduced by six individuals difficult the United States Treasury Department’s sanctions of the Tornado Cash good contracts and asking the Court to take away them from the U.S. sanctions checklist.

Tornado Cash is an open supply piece of software program working on the Ethereum blockchain that preserves privateness by permitting customers to deposit property from one crypto deal with and withdraw them utilizing a completely different crypto deal with.

Last month, Treasury sanctioned the Tornado Cash software program as a result of it was getting used by criminals — together with North Korean hackers. We don’t have any concern with the Treasury sanctioning unhealthy actors and we take a laborious stance in opposition to illegal conduct. But in this case, Treasury went a lot additional and took the unprecedented step of sanctioning a whole know-how as an alternative of particular people. The drawback right here is twofold: (1) there are reliable functions for this sort of know-how and as a results of these sanctions, many harmless customers now have their funds trapped and have misplaced entry to a essential privateness instrument, and (2) we imagine the Treasury exceeded its authority, given by Congress, by sanctioning a know-how.

At Coinbase, we’ve been combating illicit exercise because the very starting, and whereas we share Treasury’s dedication to combating crime, we imagine this motion harms harmless individuals and threatens the way forward for decentralized finance (DeFi) and web3 particularly.

Treasury used a hammer as an alternative of a scalpel

The nature of the blockchain — the place each transaction is public — makes crypto safer. But it could actually additionally create privateness considerations. If you obtain your wage in crypto, for instance, you may not need the world to know the way a lot cash you make, or the way you select to spend it.

That’s why the people we’re supporting in this case used Tornado Cash in the primary place:

  • One particular person used Tornado Cash to anonymously donate cash to Ukraine. Afterwards, his pockets obtained doubtlessly malicious air drops. But as a result of he anonymized his crypto earlier than donating, he averted assaults in opposition to his private accounts. He has funds trapped in Tornado Cash.
  • Another particular person is an early crypto adopter with a giant on-line presence and a public ENS identify linked to his Twitter profile. He used Tornado Cash to guard his private safety whereas transacting. Now he additionally has funds trapped in Tornado Cash.
  • A 3rd particular person operates an Etherum staking enterprise. At one level, a stranger working close to the place he engages in staking requested how a lot cash he was incomes. He began utilizing Tornado Cash to guard his property and his private security.

Sanctioning open supply software program is like completely shutting down a freeway as a result of robbers used it to flee a crime scene. It’s not one of the simplest ways to resolve a drawback. It finally ends up punishing individuals who did nothing flawed and outcomes in individuals having much less privateness and safety.

We imagine regulation abiding residents have a proper to privateness, particularly with a few of their most delicate information: their funds.

Treasury acted outdoors its authority

The second drawback is that, whereas Treasury is allowed to sanction individuals (together with their property), Congress by no means gave it the ability to sanction open supply software program. That’s why these plaintiffs are going to courtroom to ask that this software program be faraway from the U.S. sanctions checklist. You can learn extra about our authorized argument right here.

This will stifle innovation

Finally, sanctioning open-source code has a chilling impact on innovation.

Right now, builders are fearful that they might be held chargeable for one thing that they had nothing to do with, and no capability to regulate. At a time after we must be encouraging innovation, this type of concern and uncertainty will do the alternative — making builders marvel if, by pushing the trade ahead, they might be placing themselves in danger.

As one of many largest corporations in crypto, we’ve a duty to defend the crypto trade in opposition to actions that go too far, and deal with crypto on an uneven enjoying subject. It’s not sufficient to only say we disagree and sit on the sidelines. That’s why we’re funding and supporting this lawsuit.

We will totally adjust to the regulation whereas we await the courtroom’s resolution. But we’re hopeful that these sanctions will likely be reversed, permitting harmless crypto customers to regain entry to their funds and making it potential for anybody to make use of privateness instruments to guard themselves.

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