The Privacy Pandora’s Box
Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
“Arguing that you don't care about the right to privacy because you have nothing to hide is no different than saying you don't care about free speech because you have nothing to say.”
- Edward Snowden
Having had the privilege of watching crypto’s ascension over the past seven years, it’s been disappointing to see the cypherpunk dream of decentralised autonomy and individual freedoms erode in real-time. While regulations are crucial for driving mass adoption; careful, considered implementation is the only way the space moves forward in a healthy and collaborative manner.
Which leads us to the recent addition of coin mixing protocol, Tornado Cash, to the OFAC sanctions list by US regulators. Sanctioning a region is one thing, but sanctioning code is a pandora’s box we’re only now just cracking open.
About Tornado
Tornado Cash is the space’s most popular coin-mixing service, used to obfuscate transactions and protect user privacy. It’s simply a well-designed piece of code. And while it has, undeniably, been used by bad actors to withdraw funds from exploits and the like, it’s also simply acted as a private means of value transfer – just like good old physical cash.
Furthermore, Tornado’s liquidity (~$30m) simply does not allow for sanction circumvention on a large State level, given that:
Any entity trying to launder billions would have to make repeated transfers in painstakingly small increments (which alone would raise flags for Chainalysis)
Attempting to launder a large amount at once would essentially drain all available liquidity, making it glaringly obvious which entity is trying to use Tornado for criminal endeavours
Back in March, Jonothan Levin, CEO of Chainalysis, made every attempt to express these facts at a senate hearing. However, he struggled to get a word in edgewise due to incessant interruptions by Senator Elizabeth Warren.
Reaction
Crypto natives reacted to the announcement with staunch opposition, while Web3 developers, including core Ethereum contributors, asserted that this latest imposition simply underlines the US government’s lack of understanding of blockchain architecture and the strange paradox of sanctioning code – an almost impossible feat.
To demonstrate the absurdity of Tornado’s sanctioning, a Twitter user compiled a list of celebrity ETH addresses, and sent each 0.1 ETH from Tornado. Under the US sanction, this would mean that those wallets should be blacklisted as non-compliant.
Another Web3 builder similarly illustrated the absurdity of the current rationale in a prescient tweet:
Forward Focus
Privacy is a fundamental human right, and for good reason. Blacklisting addresses that have interacted with mixers (knowingly or otherwise) is a slippery slope.
It’s estimated that >90% of cash contains traces of cocaine, does that mean everyone who’s interacted with cash should be slapped with drug possession charges? Of course not, else we’d all be criminals.
The sanctioning of Tornado, while disappointing for those of us still flying the cypherpunk flag, has laid bare the current, not-so-decentralised state of DeFi. Other defi protocols (including Aave and Uniswap!) have blacklisted addresses in order to remain OFAC-compliant.
There is, more than ever, a tremendous amount of work to be done. And if nothing else, this latest encroachment has reinvigorated a much needed discussion – about where we’re going; how we aim to get there; and how we can achieve a better financial future without sacrificing our fundamental liberties.
This week, I leave you with a quote from former US Supreme Court Justice William J. Brennan:
“If the right to privacy means anything, it is the right of the individual, married or single, to be free from unwarranted governmental intrusion.”
