Coinbase Funds Tornado Cash Against OFAC Lawsuit

News that Tornado Cash was sanctioned by the U.S. Treasury (OFAC) has shocked the crypto community. The ban followed allegations that open-source cryptocurrency mixing protocol had aided and abated hackers backed by the notorious North Korean hacker’s group in money laundering.

A Brief Reminder

The OFAC has since received mixed opinions upon its announcement. Protests quickly came onto the scene last month after Tornado Cash’s developer had been arrested.

Amid the dissident wave, it’s been official since September 8 that six users of Tornado Cash filed a lawsuit against the Treasury Department in a U.S. district court in Texas. One of them is Coinbase’s employee.

Lifting the sanction imposed by the governmental agency is the goal. But the most unexpected move from Coinbase has proven that the ultimate goal is to gain the right to privacy.

Privacy’s Defender

In a statement made on Coinbase’s official blog, Brian Armstrong, CEO, and co-founder of Coinbase said that he would fund the lawsuits against the U.S. Treasury. The CEO explained the reasons behind his decision, saying that the move acts on behalf of many users who see their funds trapped as a result of the sanction.

On top of that, the sanction has blocked users’ access to an essential privacy tool. Tornado Cash, in addition to allowing users to mix cryptocurrencies, also serves as a privacy optimization engine, securing the confidentiality of transactions.

According to the blog post, the U.S. Treasury overstepped its authority. “In the Tornado Cash action, OFAC did not target the bad actors or the property controlled by those actors; instead, it took the unprecedented step of sanctioning open source technology — a tool legitimately used by many innocent people even if also by some bad actors.”

In an interview with CNBC, Coinbase Chief Legal Officer Paul Grewal also stressed that the sanction is a much bigger problem: the law’s interference with a technology.

The lawsuit between Tornado Cash and the US Treasury is arguably one of the toughest cases in cryptocurrency history. It also arouses the interest of the leading figures in the crypto sector. But while the arguments stay mainly on social media, Coinbase’s move is exceptional.

In light of the legal steps taken with Tornado Cash, it is clear that Coinbase intends to behave appropriately in accordance with the rules. The cryptocurrency exchange, as with all other users of Tornado Cash, is holding out hope that the sanctions will be overturned.

Many people, including Vitalik Buterin, have thus taken advantage of Tornado Cash’s services to protect their identity. In this regard, the document filed with the Court yesterday states that each plaintiff is an American who simply wants to engage in a completely legal activity in private.

Coinbase has therefore decided to join the proceedings to defend its employees and more generally freedom in the field of cryptocurrencies.

Cryptocurrency is a nascent industry and therefore needs encouragement. The sanction has, however, spread fear and uncertainty, according to Grewal. This will discourage innovations as developers wonder if by pushing the industry forward they might be putting themselves at risk.

The ongoing standoff between bitcoin giants and regulatory authorities throughout the country will continue. Laundering of money, avoidance of taxes, but also individual freedom, and anonymity of transactions are among the many seemingly contradictory factors that must be combined to build the contours of a sector that is nevertheless governed.

The US is Playing Ball

Tornado Cash was added to the OFAC’s SDN List, which generally targets terrorists, international criminals, or high dignitaries from embargoed countries. Some people argue that this practice is abusive and that it is unlawful.

The plaintiffs seek to have this measure lifted based on three legal arguments. To begin, Tornado Cash does not fit the definition of what can be added to the SDN List. Second, the practice violates the First Amendment’s guarantee of free speech. Finally, the existing hold on Tornado Cash funds is not allowed under US law.