Tornado Cash arrests spur privacy debate

Privacy is generally considered a fundamental right throughout much of the world, but when it comes to crypto mixing services like Tornado Cash, things get complicated really quickly.  

The US Department of Justice recently arrested Tornado Cash co-founders Roman Semenov and Roman Storm for allegedly facilitating the laundering of more than $1 billion in “criminal proceeds.”

The crux of the problem appears to be that the founders allegedly continued to provide and develop the service despite knowing it was being used for illicit purposes.

On the Empire podcast (Spotify/Apple), host Jason Yanowitz notes that even though the US government only attributed 7% of all activity via the service as illegal, the profit element introduced by the Tornado Cash token (TORN) potentially adds a layer of responsibility to the founders.

“Maybe there hasn’t been as much illegal activity happening on this platform as they once thought,” he suggests. “The court is now going to start to focus on the profit motives as there was this…clear profit motive at stake for the founders indicted.”

Go after the bad actors or the developers?

Yanowitz feels it’s “a real shame to go after Tornado Cash,” noting that the mixing technology itself is “neutral” in nature and “should be able to remain standing.”

“You should go after the bad actors,” he says, adding “you shouldn’t go after the platforms that enable the bad actors.” Yanowitz sees the event as another Napster or Ross Ulbricht scenario, where law enforcement is “going after the wrong folks.”

“The nuance here,” co-host Santiago Santos adds, “is that these developers, they sort of burn the keys at some point,” meaning they can no longer take down the protocol. “Once you burn the keys, it gets out in the wild. You’ve deployed this working thing and it’s just going to live on forever.”

According to Santos, the incident is “a very pivotal moment in terms of privacy, which is fundamental.”

Comparing the crypto mixing technology to messaging services, Santos mentions a hypothetical scenario: “A certain illicit activity happens and people are using messaging services to communicate.” Santos questions whether this ought to make developers liable for the private communication of criminal activities, according to the same logic.

“Where does it stop?” he asks.

Setting a “horrible precedent”

In the case of Tornado Cash, Santos notes that entities such as North Korea and the OFAC-sanctioned Lazarus Group have been known to use the service to launder funds. “That’s probably the biggest issue here, “ he says, “you have allowed a clear enemy of the state to use a piece of technology, Tornado Cash, to get funding.”

Yanowitz says court proceedings could “set a horrible precedent,” noting that decisions could allow a “stretching of the term ‘money transmission,’” and “expand the reach of these KYC AML [know-your-customer, anti-money-laundering] laws to practically every non-custodial privacy tool.”

“Maybe that even includes atomic swaps,” Yanowitz says. “Maybe it includes non-custodial [decentralized exchanges].”

“This logic that a non-custodial service has to implement KYC AML without prior precedent or legal impetus for this,” he says, “is just this absurd claim.”

“But if it got pushed through the courts, it would have a very negative impact on DeFi.”

The issue boils down to “whether or not you believe technology itself is morally neutral or is a good or a bad thing,” Yanowitz says. “For me, I think technology itself is morally neutral.” 

“It can be used for good or for bad, depending on the intentions and the actions of the people who create and use it,” he says. “The responsibility lies with those who choose to use technology unethically.”

---

Get the news in your inbox. Explore Blockworks newsletters:

• Blockworks Daily: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.
• Empire: Start your morning with the top news and analysis to inform your day in crypto.
• Forward Guidance: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.
• 0xResearch: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.
• Lightspeed: Built for Solana investors, developers and community members. The latest from one of crypto’s hottest networks.
• The Drop: For crypto collectors and traders, covering apps, games, memes and more.
• Supply Shock: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.