America’s largest cryptocurrency exchange – Coinbase is supporting a legal front against the U.S. Treasury Department following its controversial sanctioning of the privacy protocol Tornado Cash. The lawsuit’s plaintiffs include 6 people who have personally used the mixer, some of whom are Coinbase employees.
Coinbase’s senior security risk analyst said he used Tornado Cash to anonymously donate cryptocurrency to Ukraine, for fear of being targeted by Russian hackers. Co-founder of Ethereum – Vitalik Buterin – admitted last month that he also used Tornado Cash to donate to Ukraine, but to protect the recipient’s identity not his own. Using these examples, the lawsuit argues that the sanctions are hurting people who use Tornado Cash for legitimate reasons.
The United States Treasury Department argued that Tornado has been used by North Korean hackers to launder over $3 billion in cryptocurrency transactions in the past three years. One such example is the $600 million Axie Infinity hack in March, from which stolen funds once made up as much as 15% of Tornado volume. A recent report revealed that about 75% of laundered ETH is transferred to Tornado Cash by criminals in order to cover their tracks.
The United States Office of Foreign Assets Control (OFAC) previously sanctioned other cryptocurrency mixers like Blender for their use by North Korean hacking groups. However, cryptocurrency preachers argue that the Tornado Cash sanctions are qualitatively different, as they basically mean sanctioning open-source code rather than a specific group.
Cryptography Professor and ZCash expert – Matthew Green – also voiced out his concern over the Treasury’s move to ban the virtual asset mixer last month. He argued that they could set a precedent for the U.S. government to sanction scientific speech while imposing a dreadful effect on private internet companies from spreading similar code.
Coinbase took a similar argumentative stance in a follow-up blog post yesterday. Some days after the sanctions were announced, a 29-year-old developer suspected of helping to design Tornado Cash was arrested by authorities. He has since been denied bail and will remain behind bars until at least late November when a trial is slated to commence.
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