Coinbase fights as the SEC shuts down Tornado Cash

On September 8, Coinbase announced that it was funding a lawsuit against the US Treasury. The cryptocurrency exchange is funding a lawsuit brought by six people challenging the sanctions against Tornado Cash. On September 9, Securities and Exchange Commission (SEC) Chairman Gary Gensler announced that he is working hard with Congress to create legislation to increase crypto regulations.

But these two stories are not mutually exclusive. The sequence of events proves that governments are merely reactive rather than proactive when it comes Decentralized Finance (DeFi).

Tornado Cash was sanctioned by the Office of Foreign Assets Control (OFAC) back in August. OFAC alleged that a smart contract shuffling tool has helped launder more than $7 billion in cryptocurrency since its inception in 2019, including more than $455 million stolen by North Korea-linked Lazarus Group of hackers.

Coinbase CEO Brian Armstrong He said In a statement, the Treasury Department went too far, taking the “unprecedented step of imposing sanctions on an entire technology rather than specific individuals.” In addition to claiming that the sanctions exceeded the authority of the department, Coinbase argued the measures:

  • remove privacy and security for crypto users;
  • harm innocent people. And the
  • stifle innovation.

The next day, Gensler doubled down on his push for stricter regulation of the DeFi market, claiming that crypto companies would not thrive without it. “There is nothing in the cryptocurrency markets that goes against securities laws. Protecting the investor is just as important, regardless of the underlying technologies.”

Related: The US Treasury clarifies that publishing the Tornado Cash code does not violate sanctions

Not only does his choice of words like “regardless of the underlying technologies” not only fail to understand encryption and blockchain technology, but his rhetoric sparked outrage from the Web3 community, with many claiming that government regulation is a wolf in sheep’s clothing.

Jake Chervinsky, attorney and head of policy at the Blockchain Association, tweeted in response, “Crypto is a new and unique technology: how it should be regulated is a key question for Congress (not the head of the SEC) to decide.”

Security legislation is worrying enough. But the Tornado Cash sanctions set an alarming standard for anyone involved in digital assets. Not only is blockchain technology and cryptography constantly changing – what is secure now may not be secure in the near future and certainly won’t be secure next year – but there are countless legitimate applications for the likes of blockchain technology.

DeFi is all about privacy. The directory is in the name – decentralization Finance. kneaders Like Tornado Cash Further protect the privacy of its users by mixing users’ deposits and withdrawals into liquidity pools, masking their addresses and protecting their identities. Users want to protect the privacy of their transactions for a variety of legal reasons.

In this case, one of the plaintiffs used the blender to anonymously donate money to Ukraine. He was another early adopter of cryptocurrency and now has a large following on social media, with his ENS public name being linked to his Twitter account. It has used the smart contract to protect its security while making transactions. Now their assets are trapped in Tornado Cash.

Anyone’s finances include some of the most sensitive personal information. Law-abiding citizens have the right to keep this matter private. But it is this particularity that will be eroded by the type of regulation that Gensler has recently proposed, the Securities and Exchange Commission and other governments around the world.

Related: Coinbase-backed Crypto Investors Sue US Treasury After Tornado Cash Sanctions

As with these penalties, arresting people for using services for legitimate and even charitable acts, not to mention Developers locked up To write open source code that was not illegal at the time of creation, sounds like Orwellian levels of dystopia.

Since then Treasury officials have retreated, Clarification In the guidelines that, in fact, “interaction with open source code itself, in a manner that does not involve a prohibited transaction with Tornado Cash, is not prohibited.” The directive adds that copying protocol code, posting code and visiting the site are all allowed.

Although they are not officially related, the timing and similarities between the two stories are clear. Gensler likened the regulation to traffic control, saying – “Detroit wouldn’t have taken off without some traffic lights and the cops all the time.” Armstrong used an analogy on highways and robbery, saying, “Punishing open source software is like shutting down a highway permanently because thieves used it to flee a crime scene.” He is not mistaken.

How many talented developers will now be dissuaded from writing game-changing code that can not only innovate industries, but help people around the world? A few bad actors shouldn’t hold back the advancement of technology with the huge potential to revolutionize sectors beyond even finance.

The Coinbase lawsuit is a pivotal issue in the history of cryptocurrency, and the outcome – whatever it may be – will have massive repercussions for DeFi. And of course its users.

Zach Colbert He is a digital marketer by day and a freelance writer by night. He’s been covering digital culture since 2007.

This article is for general information purposes and is not intended and should not be considered legal or investment advice. The opinions, ideas and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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