Coinbase funds legal action against Treasury for attacking open-source code


Coinbase funds a six-person team court case against the US Treasury for imposing sanctions on Tornado Cash smart contracts, which have come under scrutiny for their misuse by North Korean cybercriminals who rely on them to conceal cryptocurrency transactions, helping the Hermit Kingdom indirectly fund its nuclear program. The largest crypto exchange in the United States says the government overstepped its authority in cracking down on open source technology and must outlaw its decision to sanction the code.

Tornado Cash, which was established in 2019, is a crypto privacy mixer that removes traceability across digital ledgers by aggregating cryptocurrencies from multiple sources before the user withdraws their digital tokens. North Korean hackers and other criminals have laundered more than $7 billion in transactions using the service over the past three years, according to the Treasury.

In August, the Office of Foreign Assets Control of the Treasury blacklisted Tornado Cash and said the service was a vital part of North Korea’s overseas fundraising to support its nuclear program. In an unprecedented move, he added Tornado Cash and related services to the list of Specially Designated Nationals and Blocked Persons, sparking an outcry from the wider blockchain and crypto industry. Vitalik Buterin, the founder of the Ethereum blockchain on which Tornado Cash smart contracts run, said he used Tornado Cash to donate to Ukraine. Other advocates said the government’s decision violated free speech protections enshrined in the US Constitution.

On Friday, two Coinbase employees and four crypto investors filed a legal challenge against the US Treasury in Waco, Texas, claiming the government violated the First Amendment’s free speech clause and due process clause by suing a piece of code. Coinbase argues that there are alternative avenues the government can take to prevent bad actors in North Korea and elsewhere from misusing privacy blending services.

“We have no problem with the Treasury sanctioning bad actors and we take a strong stance against illegal behavior,” Coinbase said. “But in this case, the Treasury went much further and took the unprecedented step of sanctioning entire technology instead of specific individuals.”

“Tornado Cash smart contracts are neither person or property, Coinbase said. “They’re lines of code, not humans, companies, or organizations… They’re a privacy tool, a technology, that isn’t human or entity.”

The company added that many crypto investors rely on privacy mixers like Tornado Cash to protect against hackers and thieves. In this sense, Coinbase said, “the sanctions against Tornado Cash not only blocked this open source technology for American people, but cryptographers and developers were also afraid to contribute to other important privacy projects, fearing that their code will be sanctioned in the future.”


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