Aug 18, 2023

A group of crypto investors and developers lost a lawsuit funded by Coinbase that sought to argue the U.S. Treasury Department overstepped its authority in sanctioning Tornado Cash, a mixing service designed to make crypto transactions anonymous.

Video transcript

The group of developers and investors who were suing the Treasury Department saying that it overstepped its authority and sanctioning tornado Cash has unfortunately lost their lawsuit. The group was funded by coin base Judge Robert Pitman from the US district Court for the western district of Texas found that the argument that tornado cash is not an actual entity, unconvincing ben gonna toss this off to you. Did you expect to see this group lose this case? Uh I think I did expect them to lose the case. Uh And it's interesting, it brings up AAA you know, a question that often comes up in, in these sort of cases around the decentralized finance as to whether there is kind of an operating entity in which uh to take responsibility for a project. So, and in this case, the government argued that uh this uh mix tornado cash was uh you know, facilitating money laundering and uh the, you know, the the taking of money out of wallets. And uh the, you know, coin based side argued that there was no entity to sue that the government had no basis to, to kind of go after this entity. And the judge said there was an entity that the dow did have a collection of people that were knowingly doing something together. So it's kind of an interesting test case maybe for this wider question of whether there's any kind of responsibility in these decentralized organizations? Super interesting, right? I think a lot of people in the space were saying, hey, this is a smart contract. You can't just like ban a smart contract. And I think what the judge is saying here is like the smart contract does not exist independently from its creation and the people who created it and that has major ramifications for people who are building permission, less code that exists on the internet that anyone can use. So this is um I think for a lot of privacy tech advocates, this is a very disappointing outcome, right? Um How do you sort of have immaculate conception of these things that are meant to give people financial privacy in a world that is increasingly digitally surveilled, right? And the judge is saying here like, no, there this thing existed as a result of this group of people. Therefore, that group of people should be held liable for how this is used in the world. And I think um you know, this is gonna probably likely be a contentious issue that gets played out in subsequent cases going forward. This was a really high profile one that garnered a lot of support. Obviously, you see coin base's name attached attached to the story. Um But I would imagine that this is also gonna get uh hashed out again in some future form. Uh But I think a lot of privacy advocates are certainly expressing their dismay that um this smart contract, the entirety of the smart contract was sanctioned. Um So really quite um yeah, quite disappointing for folks who wanted to see a more favorable uh privacy preserving outcome. Uh But then again, it was gonna be a hard road to hoe for tornado tornado cash, given that they're associated with the laundering of uh funds from North Korean hackers that is then, you know, funneled into various nefarious efforts including a nuclear weapons program, right? So that's a pretty, pretty uh pretty, pretty damning um sort of guilt by association that they would have to sort of be able to, to surpass in this instance. Uh They were not. But yeah, interesting to see this uh to see this play out yet. Coin basis chief legal Officer Paul Gray said that the company would support an appeal. So maybe we'll see an appeal coming up. But I think that broader question about dow and their responsibility and the contributors responsibility is going to be an interesting one moving forward. I know in the, in the previous months we've seen dos get served on Discord on Twitter. There are interesting ways that regulators are finding to serve these dolls serve the people who are contributing to these doos even if the people or contributors remain anonymous. I think it will be interesting to see how leadership at Dow see this moving forward, how much transparency there is and the decisions being made, especially if contributors are going to be held legally liable. And it's gonna be interesting to see if people actually still want to join dolls and contribute in meaningful ways. Given what's happening in the courts at the end of the day, no one wants to go to jail. If Wendy, if Wendy was here, that's what she would be saying. We don't want to go to jail, right? We want to be part of the innovation, but I don't think jail is a nice place and we don't want to be joining Sam Bank there any time soon. Yeah, I mean, just like again, like we talk about it all the time but like permission list systems are super different from uh a lot of the existing sort of structures in the world and they come with a lot of these uh these tradeoffs, right? Like, you know, you're unis right? You make a decentralized exchange that anyone can use, but by virtue of that, anyone is going to include bad guys. And so um how do you sort of mitigate, mitigate that or express that or advanced education around that such that, you know, future uh court cases, policy decisions, laws uh don't sort of throw the baby out with the bath water. And I think that's what a lot of people in are very fear fearful of. Is that ok? You know, this does have the ability to provide more access, uh financial freedom inclusion. Uh, on the flip side, we see instances like this where um, these privacy tools have been used by, by bad guys. And so it's gonna, it's gonna be hard against us. It's gonna be hard, I think to advance like uh that messaging in a way that leads to productive uh outcomes on the regulatory and policy side. And I think that's why there's like a lot of D I education efforts in, in DC. Um As the SEC even tries to expand the definition of what uh an exchange is. So this one I think is super fascinating and um certainly has people in DP I probably also, yeah, concerned about what that path forward is. Uh Ben, any last thoughts on this one? Yeah, I totally agree with that. I mean, this is kind of a foundational existential issue for, for D I and for crypto as a whole, you know, and I think you put it very, very well, you know, it's a clash between centralization and decentralization and some people believe in decentralization. And here's the government saying this is decentralization theater. And we don't believe you when you say there's no entity at the center of this. Um And I think that's going to be a question in many many cases going forward, as you say, I believe Coin Center is also suing the US Treasury um about this. So we'll have to wait and see what happens there. We'll see if can get, get the case done.

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