16th August 2022 > > Tornado Cash update.

tl;dr

The Tornada Cash sanctions are being challenged.

Market Snap

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No sign of the promised land of a meaningful breach of $25k with prices stuck in a very tight trading range.

Curious Cryptos’ Commentary – Tornado Cash Update

You will recall from the CCC dated 10th August that The Office of Foreign Assets (OFAC) has announced that it has sanctioned Tornado Cash, claiming the mixer was used by North Korea to launder hundreds of millions of dollars from hacks of crypto projects, and has used those proceeds to fund its weapons programmes.

This move – though laudable in its objective of trying to stop one of the world’s leading madmen from being able to pull the trigger on a nuclear weapon - has raised a lot of privacy concerns, which cannot be lightly dismissed. Chris Tomeo (@ctomeo) summed these up as follows on Twitter:

Incidentally, it is this belief in the principle of privacy that will drive the adoption of Web3, taking control away from the tech titans, and putting it back where it belongs – in our hands, but that is a discussion for another day.

The Electronic Frontier Foundation (EEF) has voiced its concerns:

"EFF is deeply concerned that the U.S. Treasury Department has included an open source computer project, Tornado Cash, on its list of sanctioned individuals. Code has long been recognized as speech, so there are clear First Amendment implications whenever the government inhibits the publication of computer code on a public website.”

Which sounds like a direct call to arms. Cue the lawyers.

…

Which is exactly what Coin Center, a crypto non-profit advocacy organisation is planning. Coin Center’s executive director Jerry Brito and research director Peter Van Valkenburgh issued a joint statement:

“… we believe that OFAC has overstepped its legal authority by adding certain Tornado Cash smart contract addresses to the SDN List, that this action potentially violates constitutional rights to due process and free speech, and that OFAC has not adequately acted to mitigate the foreseeable impact its action would have on innocent Americans. We intend to work with other digital rights advocates to pursue administrative relief. We are also now exploring bringing a challenge to this action in court.”

A key part of the defence is to draw a distinction between a centralised entity that facilitates money laundering, and a decentralised piece of code that has been published to the public. This is why earlier sanctions against other mixers such as Bitcoin Fog and Helix were met with resounding approval.

In fact, the issue around this distinction has already been settled, by a different but associated government entity, the Financial Crimes Enforcement Network (FinCEN). In May 2019 its guidance document specifically referred to “providers of anonymizing services” and “anonymizing software providers”.

All 30 pages of this admittedly dry document can be read here:

https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf

How this plays out in court or otherwise could have far-reaching consequences for the regulatory and legal framework with respect to the decentralised world.