Header image source: Bitcoinist
The war drums are uproaring, and the SEC is ready to take names. If before, the possibility of direct confrontation between governmental institutions and crypto has only been arbitrary, with the current state of affairs, the conflict is imminent.
Last Monday, the U.S. Treasury Department added Ethereum coin mixer Tornado Cash along with addresses associated with the service that falls under the classification typically used for terrorist organizations and enemies of the state.
With this move, the Treasury effectively banned American citizens from using Tornado Cash, a tool that allows users to conceal their cryptocurrency transactions by mixing them together. As a result, the Tornado Cash website has been unreachable for three days.
Soon after the announcement, many crypto leaders described the ban as unjust and illegal. Some even went as far as saying that this is an existential threat to user privacy—perhaps the holiest tenet of a crypto industry shaped since its earliest days by libertarian and anti-government principles.
Although not everyone in the industry shared such a drastic opinion on the situation, most still agreed that this move would trigger an escalation between hard-core crypto privacy advocates and the federal government, a development that could determine the future of crypto for years to come.
What’s Up With Tornado Cash?
The service’s status as a smart contract is fundamental to the legal and ethical questions posed by Tornado Cash’s ban. To understand this better, let’s refer to the realm of DeFi. Like many decentralized finance protocols, Tornado Cash does not require an employee to maintain or monitor transaction activity as an automated program does it.
To some analysts, the fact that no one is involved in Tornado Cash’s day-to-day operations indicates that the service is just code, meaning it does not have any mission or underlying intention. In other words, it is a tool that can neither be good nor bad and can be equally used for the benefit of society or malicious activities.
This is why some see this ban as an existential threat to crypto. Before SEC would either blacklist project founders, websites or wallet addresses, but this time, the agency is going after the technology, which is unprecedented. This is the first time the software was shut down, which is unique regardless of how you look at it.
Is Crypto Really Going Down?
Source: Jumpstart Magazine
Those who perceive Tornado Cash’s underlying neutrality as fundamental to the development of the technology fear that Monday’s decision will only be the tip of an iceberg. Indeed, this creates a precedent for the U.S. government to justify banning pretty much any service or product simply because it could be used for nefarious activities.
The possibility for this confrontation to escalate soon is very real, based on the rhetoric employed by both sides. The government plans to double down on imposing even more restrictions, saying that the only way to prevent similar occurrences is to know every customer’s identity. Meanwhile, some industry leaders responded to these claims with remarks that it is too dangerous to be an American citizen in the current environment.
So Does This Mean That DeFi Is Going Down First?
Well, yes and no. Take, for example, the upcoming project Youniverze finance, which is set to deliver a product that utilizes the benefits of a centralized exchange with some DeFi features. Due to its internal design, it could identify the most cost-effective bridge or DEX with the cheapest swap rates available.
What this means is that this project can act as a multichain platform with an easy-to-navigate and intuitive user experience, making DeFi more accessible. It is hard to imagine that the U.S. government would ban Coinbase, so at least for now, it is safe to assume that projects like Youniverze finance are in safe territory.
What To Make Of It
The implications of Tornado Cash will start to ripple across the wider crypto community any time now. The industry will face a choice: comply with the law or adhere to ideological commitments of security, privacy and anonymity.
Many Ethereum addresses were banned by the SEC associated with the service, and now anyone transacting with these would be seen as doing business with North Korea. Considering that countless mining machines across the globe approve all Ethereum transactions, and if one such miner were to approve the transaction with a Treasury-sanctioned address, would they have committed a crime on par with assisting terrorist organizations?
The answer to this question is unclear, but this week’s ban indicates that the crypto community can expect further government sanctions (just and unjust) infringing the privacy of crypto transactions. Buckle up, folks, because this war will be a long one.
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