The #Web3 and #crypto world is buzzing with outrage about the sanctioning of Tornado Cash by the U.S. Treasury.
Perhaps I should be outraged too, but my feelings are mixed.
First, some background: #TornadoCash is a service (actually, just a piece of software) that allows users to make crypto transactions more private by pooling large numbers of transactions that prevents them from being trackable.
The Treasury Dept. claims $7 billion worth of cryptocurrency has been illegally laundered through Tornado Cash. The sanctions imposed on August 8 block Americans from interacting with Tornado Cash.
In response to the sanctions, Github blocked access to the Tornado Cash source code stored there.
Generally, I would:
1️⃣ Favor privacy over crime-fighting (e.g., efforts by law enforcement to get backdoors to encrypted apps/phones).
2️⃣ Object to targeting a technology rather than individual wrongdoers.
3️⃣ Stand up for the First Amendment rights protecting source code. (And for the record, I spent 4+ years on the front lines of the First Amendment as a news reporter and then worked on several First Amendment cases as a law student and lawyer, defending some dodgy characters who nevertheless deserved protection.)
But the terrible track record of the Web3 / crypto industry in preventing fraud and outright theft makes it hard to rush to the defense of a technology that’s been used by thieves and fraudsters.
It’s one thing to defend the right of unsavory characters to speak their minds with the idea that otherwise our freedoms will erode for more noble purposes like exposés addressing corruption in government. It’s another to defend the use of technology that enables money laundering when that defense benefits an industry that (though it has great promise) has been fraught with fraud, con artists and thieves.
But just as I got comfortable with the idea that technology like Tornado Cash is indefensible considering what has happened in the crypto space, Secretary of State Anthony Blinken tweeted about the sanctions.
His tweet said, Treasury had “sanctioned virtual currency mixer Tornado Cash, which is a U.S.-sanctioned, [Democratic People’s Republic of Korea, North Korea’s official name] state-sponsored hacking group, used by the DPRK to launder money.” (Note: Screenshot from Coindesk.)
That is not true at all. North Korean hackers may have used Tornado Cash, but Tornado Cash is an open source app that was not developed by North Korean hackers.
The tweet was later deleted, but ugh. How can a senior government official get something like that so wrong? 🤔
Although it wasn’t Blinken’s agency that issued the sanctions, it makes you wonder whether the government really understood Tornado Cash very well before issuing sanctions that, among other things, expose any American transacting with the app to severe criminal penalties.
Unfortunately, we are bound to see more actions like the sanctions against Tornado Cash as the government tries to clean up what it perceives as a “Wild West” environment in Web3, especially when the industry seems to be doing so little to clean its own act.
Can we at least agree on the following:
1️⃣ Web3 / crypto as an industry needs to take serious steps to comply with the law and make it harder for criminals to use its services.
2️⃣ Web3 / crypto businesses also need to take cybersecurity seriously so that theft isn’t so rampant.
3️⃣ Government agencies need to dig a lot deeper to understand Web3 tech before taking drastic regulatory action.
Obligatory disclaimer: Opinions are mine. Not legal or financial advice.