Coinbase Backs Lawsuit Against US Treasury

Sanctions on open source technology may have “a chilling effect on innovation,” Coinbase CEO Brian Armstrong said


Coinbase CEO Brian Armstrong | blockworks exclusive art by axel rangel


key takeaways

  • The Treasury sanctioned cryptocurrency mixer Tornado Cash for facilitating money laundering of more than $7 billion worth of digital currencies
  • Six plaintiffs have filed a lawsuit against the Treasury’s Office of Foreign Assets Control

Centralized cryptocurrency exchange Coinbase is funding a lawsuit filed against the US Treasury Department’s Office of Foreign Assets Control (OFAC) by six people affected by the Tornado Cash sanctions.

The lawsuit asks the court to remove Tornado Cash from the US sanctions list — currently, it is illegal for any US person to interact with the app.

Calling the move “unprecedented, overboard action” that oversteps the government’s authority, the suit argues the Treasury’s stance “infringes on Plaintiffs’ constitutional rights [and] threatens the ability of law-abiding Americans to engage freely and privately in financial transactions.”

Cryptocurrency mixers such as Tornado Cash allows users to privately deposit assets from a crypto address and withdraw them using a different address. The Treasury says that a DPRK state-sponsored cyber-hacking group has used Tornado Cash to launder more than $7 billion worth of digital currencies. 

These sanctions “represent a significant unauthorized expansion of OFAC’s authority,” which have directly “harmed innocent people seeking to legitimately protect their privacy and security using this technology,” Paul Grewal, chief legal officer at Coinbase, said in a statement.

“No one wants criminals to use crypto protocols, but blocking the technology entirely (which is what this sanction essentially does) is not what the people’s elected representatives authorized — especially when there are effective routes to more narrowly target bad actors,” Grewal said.

The lawsuit argues that many users turn to mixers such as Tornado Cash for lawful privacy reasons. Joseph Van Loon, an ordinary American citizen that lives in Texas, used Tornado Cash to avoid the attention of malicious actors. A similar story is true for Tyler Almeida, a senior security risk analyst at Coinbase, who anonymized his wallet address to prevent unwanted airdrops and malicious scammers.

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“The plaintiffs in this lawsuit represent a cross-section of crypto users and developers who used Tornado Cash to protect their privacy and security for various legitimate reasons,” Grewal said.  

Coinbase CEO Brian Armstrong wrote in a statement that sanctioning open source software is similar to shutting down a highway that robbers used to flee a crime scene. 

“It ends up punishing people who did nothing wrong and results in people having less privacy and security,” Armstrong said. 

As Tornado Cash is an open source, decentralized, non-custodial privacy protocol on a blockchain, it can not be controlled by any individual or group of individuals. The lawsuit suggests that sanctioning the protocol is essentially sanctioning open source technology, a move which Armstrong said will have “a chilling effect on innovation.”

“Developers are worried that they could be held responsible for something they had nothing to do with, and no ability to control,” Armstrong said. “At a time when we should be encouraging innovation, this kind of fear and uncertainty will do the opposite — making developers wonder if, by pushing the industry forward, they could be putting themselves at risk.”

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