Crypto Investor Paradigm Argues Infrastructure Providers Should Not Be Subject to US Treasury Sanctions

The firm laid out a legal argument against Office of Foreign Assets Control (OFAC) sanctions targeting base layer participants such as miners and validators.

AccessTimeIconSep 9, 2022 at 8:17 p.m. UTC
Updated Sep 9, 2022 at 8:46 p.m. UTC

Frederick Munawa is a Technology Reporter for Coindesk. He covers blockchain protocols with a specific focus on bitcoin and bitcoin-adjacent networks.

Crypto investment firm Paradigm published a nuanced legal argument amid concerns of potential sanctions by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) that would target blockchain base layer participants such as miners and validators.

The post was published on Thursday and comes on the heels of a lawsuit filed by users who believe OFAC exceeded its authority when it sanctioned Tornado Cash smart contract addresses last month.

Paradigm acknowledged that sanctions can be an important tool to preserve national security, but said it believes base layer participants merely record and order data (which may include sanctioned addresses), but do not actively control sanctioned assets. Paradigm further suggested that stringent regulation would eventually push blockchain innovation offshore, making it more difficult to track crypto transactions for legitimate national security purposes.

Paradigm explained that a blockchain “base layer” is essentially a “communications protocol and technology infrastructure,” much like the internet. As such, the base layer must be free from censorship and preserve neutrality in order to maintain its utility as a public good.

“It is widely accepted that the public switched telephone network and the switching centers that allow telephones around the globe to communicate are not expected to filter communications and exclude sanctioned persons. The same argument applies to the infrastructure of the internet. Crypto’s base layer is no different,” the post read.

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Frederick Munawa is a Technology Reporter for Coindesk. He covers blockchain protocols with a specific focus on bitcoin and bitcoin-adjacent networks.

CoinDesk - Unknown

Frederick Munawa is a Technology Reporter for Coindesk. He covers blockchain protocols with a specific focus on bitcoin and bitcoin-adjacent networks.

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