tl;dr
Coinbase's chief legal officer criticizes the U.S. Treasury for bending old laws in sanctioning Ethereum mixer protocol Tornado Cash, which has resulted in charges against its founders. With support from Coinbase, Tornado Cash is challenging the government's authority to regulate code as property. C...
U.S. Treasury sanctions Ethereum mixer protocol Tornado Cash, holding developers and token holders accountable for illicit fund transfers. Tornado Cash founders Roman Storm and Roman Semenov face charges of money laundering, sanctions violations, and unlicensed money-transmitting business operation.
Tornado Cash sues U.S. government with Coinbase's support, challenging the government's authority to regulate code as property. Coinbase CEO Brian Armstrong criticizes the sanctioning of open-source software, likening it to permanently shutting down a highway due to criminal use.
Summary: Coinbase's chief legal officer criticizes the U.S. Treasury for bending old laws in sanctioning Ethereum mixer protocol Tornado Cash, which has resulted in charges against its founders. With support from Coinbase, Tornado Cash is challenging the government's authority to regulate code as property. Coinbase CEO Brian Armstrong also voices concerns about the sanctioning of open-source software, likening it to punishing innocent parties and reducing privacy and security in the crypto industry.
Paul Grewal, Coinbase's chief legal officer, said Monday night that the U.S. Treasury is "bending old laws past their breaking point" in its quest to sanction Ethereum mixer protocol Tornado Cash. A cryptocurrency mixer obscures the sender and receiver of a transaction, affording people who use public blockchains some privacy. But regulators have decided that the developers and holders of the TORN governance token bear responsibility if and when the mixers have been used to transfer illicit funds. As a result, in 2022, the U.S. Treasury's Office of Foreign Asset Control sanctioned Tornado Cash. Federal prosecutors then filed charges against Tornado Cash founders Roman Storm and Roman Semenov, charging them with money laundering, sanctions violations, and conspiracy to operate an unlicensed money-transmitting business.
In a bid to fight back, Tornado Cash sued the U.S. government —with Coinbase's backing. Nw that there's been some movement in case, Grewal is sharing his thoughts. One of the holes in the government's argument, he said, was trying to prove that code is property, and therefore something that the Treasury can regulate. "Immutable, open-source software code isn’t property, which creates a real issue for Treasury, as it’s authorized to regulate only 'property' in which a foreign national has an interest," he wrote in a thread of messages on Twitter (aka X) late Monday. "Bending old laws past their breaking point is not the way. We look forward to the Fifth Circuit’s careful consideration."
Coinbase has made it clear that the crypto industry at large has a lot at stake in proving that the Treasury doesn't have the authority to sanction a mixer protocol. "Sanctioning open-source software is like permanently shutting down a highway because robbers used it to flee a crime scene," Coinbase CEO Brian Armstrong wrote in a blog post about the lawsuit. "It's not the best way to solve a problem. It ends up punishing people who did nothing wrong and results in people having less privacy and security."
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