Coinbase Backs Tornado Cash Despite Sanctions

Coinbase Backs Tornado Cash Despite Sanctions

Coinbase supports lawsuit against US Treasury’s ban on Tornado Cash, arguing that it violates First Amendment rights and constitutes government overreach, as the plaintiffs question the Treasury’s categorization and definition of Tornado Cash as well as the authority to impose sanctions, potentially setting a precedent for the regulation of privacy-enhancing tools in the cryptocurrency industry.

The filing claims that the Treasury does not possess the necessary jurisdiction to ban Tornado Cash and its associated transactions.

In a recent filing on May 24, 6 individuals presented four key arguments to overturn the  United States Treasury’s decision to impose sanctions on our  trending cryptocurrency mixer, Tornado Cash.

The plaintiffs argue that the case is not about granting special regulations to new technology but rather about Government overreach and a violation of 1st Amendment rights.

The arguments were summarized by Coinbase’s chief legal officer, Paul Grewal, in a Twitter thread, where he contended that the Government is trying to employ a property sanctions statute to ban open-source software, which contradicts the original intentions of the law.

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Cryptocurrency exchange Coinbase Crypto exchange has expressed support for the lawsuit against the United States Department of Treasury, at the beginning filed on September 8, 2022.

The plaintiffs involved in the filing include Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch, most of whom have had prior interactions with Tornado Cash.

Questioning the Treasury’s categorization of Tornado Cash

The plaintiffs’ 1st argument questions the Treasury’s effort to categorize Tornado Cash as a foreign “national” to justify its actions.

The plaintiffs highlight that the Treasury’s definition of Tornado Cash includes all holders of the TORN crypto token, regardless of any shared purpose. Consequently, the plaintiffs argue that Tornado Cash cannot be classified as an unincorporated association according to the Treasury’s own criteria.

Coinbase-supported motion counters Tornado Cash sanctions - 2
Source: Paul Grewal on Twitter

The Second argument revolves around seeing as open-source smart contracts, which provide functionality to Tornado Cash. The plaintiffs claim that these smart contracts cannot be deemed as property since any property is traditionally defined as something that can be owned.

Even if the smart contracts were considered property, the third argument made by the plaintiffs contests the absence of any “interest” held by a Tornado Cash entity in these contracts. Consequently, reports by the plaintiffs, the Treasury lacks the authority to impose sanctions.

The final argument centers on the violation of the 1st Amendment. The plaintiffs argue that even if the Treasury possesses the authority to sanction Tornado Cash, such an action infringes on the right to free speech. They contend that the Treasury cannot justify this imposition by suggesting that Tornado Cash users should exercise their free speech rights elsewhere.

Upholding privacy in the cryptocurrency space

The United States Treasury at the beginning imposed sanctions on plenty of addresses associated with Tornado Cash on August 8, 2022, merely a 30 days after the open-sourcing of the user interface code.

Tornado Cash, a decentralized Ethereum (ETH) mixer, offers users enhanced transactional privacy by obscuring the origin of their funds. The regulatory concerns surrounding privacy-focused tools have led to sanctions on such services.

Coinbase Crypto exchange intends to address these concerns through its motion arguments in support of lifting sanctions on Tornado Cash.

The outcome of Coinbase’s motion to lift the sanctions on Tornado Cash could have far-reaching implications for privacy-enhancing tools and innovation in the digital currency industry. It may set up a precedent for treating similar privacy-focused projects and shape the regulatory landscape concerning digital currency privacy.

In addition, this decision could influence how exchanges, regulatory authorities, and users perceive and engage with privacy tools moving forward.


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