On September 8, Coinbase announced that it will pay a lawsuit against the United States Treasury Department. The cryptocurrency exchange is supporting a lawsuit filed by six people challenging the ban on Tornado Cash. And on September 9, Securities and Exchange Commission (SEC) Chairman Gary Gensler announced that he is working hard with Congress to create legislation to increase cryptocurrency regulations.
But these two stories are not mutually exclusive. The sequence of events ensures that governments are fully proactive, rather than passive, regarding decentralized finance (DeFi).
Tornado Cash was sanctioned by the Office of Foreign Assets Control (OFAC) in August. Since its creation in 2019, the smart contract aggregator has helped to launder more than seven billion dollars worth of kriptovalyutnoy, including more than $455 million stolen by the Lazarus group of North Korean-linked hackers.
“Treasury has gone too far,” Coinbase CEO Brian Armstrong said in a statement, “unprecedentedly sanctioning technology rather than individuals.” In addition to saying the sanctions exceeded the department’s authority, Coinbase disputed the actions:
- Remove privacy and security for crypto users;
- Innocent people get hurt; And
- Stifling innovation.
The next day, Gensler redoubled his efforts to tighten the DiFi market, saying crypto companies wouldn’t thrive without it. “Nothing about the crypto markets is incompatible with securities laws. Regardless of the underlying technologies, investor protection is also appropriate.
Related: The US Treasury has made it clear that Tornado Cash Code does not violate sanctions
His choice of words, such as “regardless of the underlying technologies,” not only shows a lack of understanding of crypto and blockchain technology, but his speech has sparked outrage from the Web3 community, which sees government regulation as a wolf in sheep’s clothing.
“Crypto is a novel and unique technology: how it should be regulated is a big question for Congress (not the SEC chairman) to decide,” Jake Chervinci, head of policy and legal expert at the Blockchain Association, tweeted in response.
Chairman Gensler says that most digital assets are securities. Decades of legal precedent say otherwise.
Regardless, crypto is a novel and unique technology: how it should be regulated is a key question for Congress (not the SEC chairman).
My take on the WSJ: https://t.co/E7kql6Vohb
— Jake Chervinsky (@jchervinsky) September 8, 2022
Security law is a concern enough. But the Tornado Cash Sanctions set a shocking benchmark for anyone involved in digital assets. Not only are blockchain technology and cryptography constantly changing – what’s secure now may not be secure in the near future, and it certainly won’t be secure next year – but there are tons of legitimate applications for blockchain tech lovers.
DeFi is about privacy. The clue is in the name – Decentralized Finance. Mixers like Tornado Cash further protect user privacy by mixing users’ deposits and withdrawals into liquid pools, hiding their addresses and protecting their identities. Users want to protect the privacy of their transactions for a variety of legal reasons.
In this case, one of the plaintiffs used the mixer to anonymously donate money to Ukraine. Another was an early crypto user and now has a significant social media presence, with his official ENS name linked to his Twitter account. It used its smart contract to keep the transaction secure. Now their assets are held in Tornado Cash.
A person’s finances include some of their most sensitive personal information. And law-abiding citizens have the right to keep this secret. But it is this privacy that will be eroded by recent regulations proposed by Gensler, the SEC and other governments around the world.
Related: Coinbase-Backed Crypto Investors Sue US Treasury Department After Tornado Cash Sanctions
As with these sanctions, imprisoning people from using services for legitimate and good purposes, let alone locking out developers from writing illegal open source code at the time of creation, feels like an Orwellian-dystopian level. .
Treasury officials have pushed back, clarifying in the guidance, that “it is not prohibited to interact with open source code in a manner that does not involve prohibited transactions with Tornado Cash.” Instructions Copying the protocol code, publishing the code, and visiting the website are all permitted.
Although not officially connected, the timing and similarities between the two stories are telling. Gensler likens regulation to traffic control: “Detroit wouldn’t take off if there were no traffic lights and no cops.” Armstrong used highways and false analogies, saying, “Banning open source software is like permanently closing a highway because hackers use it to get away with crime.” And he was not wrong.
How many talented developers are prevented from writing game-changing code that not only creates industries, but also helps people around the world. A small number of bad actors should not hinder technological progress that has the potential to transform financial or even sectors.
The Coinbase lawsuit is a pivotal case in cryptocurrency history, and the outcome — whatever it is — will have significant implications for DeFi. And of course the users.
Zach Colbert He is a digital marketer by day and a freelance writer by night. He’s been covering digital culture since 2007.
This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.