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Privacy and Cryptography


Tl;dr. Coinbase is financing a lawsuit by six people challenging U.S. Treasury Department’s sanctions on the Tornado Cash smart contract and asking the Court for their removal from the U.S. sanction list. These sanctions are beyond Treasury's jurisdiction, harm innocent persons, eliminate privacy and security options, and suppress innovation.


by Brian Armstrong, CEO and cofounder

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Today, we announce that Coinbase will fund a lawsuit by six people challenging US Treasury Department's sanction of Tornado Cash smart contract and asking the Court for their removal from the U.S. Sanctions List.

Tornado Cash, an open-source piece of software that runs on Ethereum blockchain, is a privacy-preserving tool. Users can deposit assets to one crypto address and withdraw them to another crypto address.

Treasury sanctioned Tornado Cash last month because it was being used illegally by criminals, including North Korean hackers. We are not opposed to the Treasury sanctioning criminals and take a tough stance against illegal behavior. In this instance, Treasury took an unprecedented step and sanctioned an entire technology rather than just a few individuals. This raises two problems: (1) There are legitimate applications for this technology, and as a consequence of these sanctions many innocent users now have funds trapped and have lost access a crucial privacy tool. (2) We believe that the Treasury overstepped its authority given by Congress by sanctioning a technology.

Coinbase has been fighting illegal activity since its inception. While we support Treasury's commitment towards fighting crime, this action harms innocent persons and threatens decentralized finance (DeFi), and web3 specifically.

Treasury used a hammer rather than a scalpel to make the decision.

Crypto is more secure because every transaction on the blockchain is public. Privacy concerns can be created by the blockchain. For example, if you get your salary in crypto, it is possible that you don't want the entire world to know how much you earn or how you spend it.

This is why Tornado Cash was used by the people we are supporting in this case:

  • Tornado Cash was used anonymously by one person to donate money to Ukraine. His wallet was then subject to potentially malicious air drops. He anonymized his crypto prior to donating and avoided any attacks on his personal accounts. Tornado Cash holds his funds.
  • Another individual is an early adopter of crypto with a strong online presence and a public ENS account linked to his profile on Twitter. Tornado Cash was used to protect his personal safety while transacting. He also has Tornado Cash funds.
  • An Etherum staking company is run by a third party. A stranger approached him near the place he participates in staking and asked how much he was making. Tornado Cash was his first choice to safeguard his assets and personal safety.

Sanctioning open-source software is like putting a halt to traffic because criminals have used it to escape from crime scenes. This is not the best way of solving a problem. It punishes people who did not do wrong, and it results in less privacy and security.

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We believe law-abiding citizens have the right to privacy, particularly with their most sensitive data: finances.

Treasury acted beyond its authority

The second problem is that while Treasury can sanction individuals (alongside their property), Congress has never given it the power sanction open-source software. These plaintiffs are asking for the removal of this software from the U.S. sanctions. Read more about our legal argument by clicking here.

This will stop innovation

Last but not least, open-source code sanction can chill innovation.

Developers are concerned that they might be held accountable for something they did not do or control. This kind of fear and uncertainty, at a time when innovation should be encouraged, will lead to developers wondering if pushing the industry forward could put them at risk.

We are one of the biggest companies in crypto and have the responsibility to protect the industry from excessive actions, and ensure that crypto is treated fairly. It is not enough to simply say that we disagree with the other side and remain silent. This is why we are funding and supporting the lawsuit.

While we wait for the court's ruling, we will comply fully with the law. We are hopeful that the court will reverse these sanctions, which would allow innocent crypto users to access their funds again. It also makes it possible for anyone to use privacy and security tools to protect themselves.


Defending Privacy In Crypto was first published on Medium's The Coinbase Blog. People are responding to the story by commenting and highlighting it.

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By: Coinbase
Title: Defending Privacy in Crypto
Sourced From: blog.coinbase.com/defending-privacy-in-crypto-e09db33dece8?source=rss—-c114225aeaf7—4
Published Date: Thu, 08 Sep 2022 13:32:19 GMT

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