Coinbases CLO brings clarity to Tornado Cash vs. U.S. Treasury debate

Coinbases CLO brings clarity to Tornado Cash vs. U.S. Treasury debate

Tornado Cash faces Treasury sanctions for misuse of property law; Chief Legal Officer of Coinbase, Paul Grewal, discusses the ongoing legal tussle and the challenge to these sanctions in his Twitter thread.

Tornado Cash, an open-source privacy tool used by numerous digital currency owners, has  dropped foul of Treasury sanctions. The plaintiffs are now challenging these sanctions, arguing they’re being applied incorrectly. Paul Grewal, Chief Legal Officer of Coinbase Crypto exchange, has provided some clarity on the ongoing legal tussle betwixt Tornado Cash and the United States Treasury in his Twitter thread. 

All the four arguments outlined by Grewal essentially point towards one central issue: the government’s effort to apply a property sanctions statute to open-source software, which, reports by the plaintiffs, is a misuse of the law. Is it feasible or even valid to apply traditional property law to a decentralized, blockchain-based system? 

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Fourfold arguments against sanctions

“The plaintiffs make 4 points here, but they all come down to the same complication. The Government. is attempting to ban the use of open-source software using a property sanctions statute.  Because this isn’t what the law was meant to do, they can’t make the law fit this case.” Paul Grewal

The challenge to these sanctions centers on four key points. Firstly, they argue that owning Tornado Cash’s digital crypto token (TORN) doesn’t necessarily make one a member of the entity “Tornado Cash.” To put it another way, just because you own the crypto token, doesn’t mean you’re part of the organization.

Secondly, the challenge questions whether these open-source, immutable smart contracts are “property” in the legal sense. Traditional law reveals property is something that can be owned, controlled, or changed – but these smart contracts can’t be.

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Thirdly, the plaintiffs claim that neither the founders, developers, nor TORN crypto token holders have a ‘property interest’ in these smart contracts. It’s like saying you can use a public park, but you can’t assert to own it.

In the end, they argue that by sanctioning Tornado Cash, the Government is essentially impinging on free speech rights. Users of Tornado Cash use the software to guard their privacy while making important donations – actions that are protected by the 1st Amendment.

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Grewal likewise made it clear that the plaintiffs are not demanding special regulations for digital currency, as suggested by the Government. They are only seeking that the Government meets the basic legal prerequisites that Congress outlined before restricting access to a privacy tool that protects legal purchases and donations. 

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This legal battle raises some thought-provoking questions. Should traditional property law apply to open-source digital assets? Can ownership be defined in the world of decentralized technology? And does protecting digital privacy fall under the 1st Amendment? Only time will reveal the answers!


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