Coinbase To Fund Lawsuit Against U.S. Treasury Over Tornado Cash Sanctions

Coinbase CEO Brian Armstrong has decided to fight back against what he deems to be censorship by the U.S. Treasury Department. In its most recent blog post, Coinbase officially announced that it intends to fund the lawsuit which has now been filed by 6 people.

Each of the claimants allege to have used Tornado Cash for legitimate purposes. However, the sanctions affected them in the most brutal way, as their Ethereum (ETH) addresses were banned regardless of intent. They state that “harm has been done to law abiding citizens”.

Today, we announced that @Coinbase is funding and supporting a lawsuit by six individuals against the Treasury Department’s sanctions of Tornado Cash’s smart contracts, an open source piece of software. You can read more about the details here:

— Viktor Bunin (@ViktorBunin) September 8, 2022

A Two-Fold Problem

The dubious decision to enforce sanctions upon Tornado Cash has left the crypto community divided. While some crypto analysts have praised the move by the U.S. government as curbing terrorism funding, others fear that the unprecedented ban on the financial technology is “exceeding [their] authority” and is not fair to anyone, especially not to the project’s developers.

Brian Armstrong asserts that Coinbase takes “a hard stance against unlawful behavior”. However, in spite of that, Mr. Armstrong believes that the U.S. Treasury went beyond their jurisdiction in sanctioning an entire open-source technology. Indeed, many used the technology within the terms of the law, and have now lost a crucial privacy tool. Ultimately, the Coinbase leadership fears that, if this form of sanction becomes the norm, decentralized finance (DeFi) and Web 3.0 applications could become exposed to a higher degree of potential dangers in the future.

News of the Tornado Cash sanctions shocked the crypto community last month. @faryarshirzad, @SheilaWarren and @JakeChervinsky explain what happened, who was impacted and what the implications of this decision by OFAC are in the latest Around the Block

— Coinbase (@coinbase) September 8, 2022

To What Extent Is Tornado Cash Linked to Terrorism?

According to reports, the lead developer of Tornado Cash was arrested in the Netherlands just days after the U.S. Treasury implemented the ban. The news caused immense backlash in the crypto community, with many crypto enthusiasts expressing feelings of injustice that the developers of the open-source application are being arrested while Terra (LUNA) Founder Do Kwon still walks free.

That being said, there are at least three legitimate use cases for the Tornado Cash crypto mixer. For instance, Vitalik Buterin used Tornado Cash to donate money to Ukraine. According to the Ethereum Co-Founder, the technology made it possible to conceal the receiver’s identity. Secondly, a crypto influencer with a strong online presence was able to use the crypto mixer to protect his personal security. Thirdly, a businessman operating an Ethereum (ETH) staking business alleged that he used Tornado Cash to conceal his identity from scammers.

On the Flipside

Despite big players in the crypto world defending the honor Tornado Cash, there has been clear evidence of the technology being used in every single hack performed by the notorious Lazarus Group so far in 2022.

Why You Should Care

The U.S. Treasury signed off on the ban on Tornado Cash on August 8th, 2022. According to government officials, Lead Developer Alexey Pertsev has links to Russian authorities. With evidence that Tornado Cash has been used by North Korean hackers in every instance in 2022 prior to the ban, the U.S. government fears that Tornado Cash may have direct links to authoritarian regimes and terrorism funding.

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