Coinbase Supports TornadoCash Bravely but not Selflessly

The lawsuit against the U.S. Treasury’s sanctions on Tornado Cash is backed by Coinbase. Six plaintiffs — “each is an American who simply wants to engage in entirely lawful activity in private,” — are to prove that the Treasury overstepped its authority and brought harm to users by applying sanctions.

💡 The Office of Foreign Assets Control (OFAC) imposed sanctions on Tornado Cash last month over allegations it had laundered more than $7 billion worth of virtual currency. The problem is that it sanctioned an entire technology instead of punishing specific [bad] individuals. Here you can find more on TornadoCash and U.S. Treasury’s sanctions.

The lawsuit claims that the Treasury overstepped its legal authority and that the department infringed on the plaintiffs’ First Amendment rights by barring them from using a tool that enabled them to exercise their free speech. The plaintiffs have asked the court to declare that “Defendant’s designation is null, void and with no force and effect”.

Coinbase announced that it will pay legal costs for six people challenging OFAC:

Coinbase is funding a lawsuit brought by six people challenging the U.S. Treasury Department’s sanctions of the Tornado Cash smart contracts and asking the Court to remove them from the U.S. sanctions list. The sanctions exceed Treasury’s authority, harm innocent people, remove privacy and security options for crypto users, and stifle innovation.

Paul Grewal, Coinbase’s chief legal officer, said Coinbase found the plaintiffs by surveying its own staff (two out of six plaintiffs are Coinbase employees):

“We came to understand that we had employees inside of Coinbase who were relying upon Tornado Cash to do things like donate money to relief efforts in Ukraine and to protect their transactions and salary information from prying eyes,” he said. “Ordinary people doing ordinary things suddenly swept up in designations that had no basis in law.”

At the first glance, it all looks like a very brave and even self-sacrificing decision for a publicly traded U.S.-based company, especially taking into account that according to the authorities the stolen crypto is a source of money for North Korea’s nuclear program. At the same time let’s be honest: Coinbase is not a knight in shining **armour. No exchange can exist without users’ trust and these Coinbase actions most likely will strengthen loyalty within the crypto community .

Claiming that authorities are infringing the First Amendment is an old but extremely powerful trick… The plaintiffs cases are also carefully selected: helping Ukraine and being afraid of Russian hackers, building fair and open Internet, avoiding harassment from malicious actors etc. These are sensitive topics which will attract community support to the case. Plus if the Treasury somehow harms the exchange in response, it won’t look good at all in the public eye.

As Brian Armstrong, CEO and cofounder of the exchange said, these sanctions are similar to “permanently shutting down a highway because robbers used it to flee a crime scene”. We agree that the authorities have been too severe in their decision which harmed way more innocent people than criminals, although we also understand why this decision was taken. We hope that a fair compromise can be found and continue to observe.