Investors sue Treasury Department for blacklisting crypto platform Tornado Cash

https://www.nytimes.com/2022/09/08/business/tornado-cash-treasury-sued.html

227 512 4 years ago

mikece4• 4 years ago

Banning a service because it "might be used for illegal purposes" is insufficient. This is a problem with law enforcement in general: they are lazy and seek to have automated solutions to so much of what used to be called police work. This applies to warrant-less wiretaps, pulling information on people from 3rd party data brokers to side-step warrant and FOIA requirements, and more. I would rather money-launderers get away with things and for freedom to prosper than to have an all-encompassing surveillance state.

cguess• 4 years ago

It was used for tumbling, to the tune of $450m by the North Koreans. It's not a theoretical situation.

mikece4• 4 years ago

And yet, somehow, we knew exactly who was doing it. Why the urgency to shut it down?

ballenf• 4 years ago

And what's the value of drugs trafficked over public highways? Or illegal activity coordinated over SMS?

Using volume of illegal activity cannot be the primary factor in categorizing a platform.

sam0x175• 4 years ago

If that's the cost of a freer internet that's fine with me. I don't care if it's $10t.

whatisweb36• 4 years ago

450m is a whopping 6% of all deposits on Tornado Cash[1]. The total percentage of illicit activity on the protocol is reported to be in the 10-30% range[2].

What percentage of activity in an E2EE chat application like Matrix is illicit? If a significant but minority percentage of its use is facilitating criminal discussion, should those open protocols also be sanctioned?

[1] https://dune.com/poma/tornado-cash_1

[2] https://www.eff.org/deeplinks/2022/08/code-speech-and-tornad...

jfim6• 4 years ago

How much of it is used for legitimate reasons versus illicit ones? If the overwhelming majority of the transactions are illicit, it makes sense to ban it.

Wowfunhappy• 4 years ago

I agree with you, but I'd like to point out that the same logic could be applied to e.g. game console emulators.

...and as much as I hate to say it, I do think the logic might be correct in both situations. (I say this as a heavy user of console emulators—albeit also as someone who does go through the trouble to legally dump his own games.)

dsr_2• 4 years ago

It makes even more sense to allow it, and regulate it.

The regulation should be the existing Know Your Customer requirements plus a 100% traceable log subject to inspection, auditing and subpoena.

toolz4• 4 years ago

if central powers stop being lazy then nothing was illicit. No violence can be inflicted from trading digital currencies. It's lazy policing to try and control resources rather than stop the actual violence.

If someone owns a resource, no matter who they are, why shouldn't they be able to utilize it? If that resource was acquired with violent means such as human trafficking - then maybe our policing efforts should be to catch the perps trafficking humans, then they'll have everything they need to confiscate any and all resources those perps have.

This roundabout, lazy method of hurting innocent people in hopes that you only mostly hurt guilty people doesn't sit well with me and I don't think it's good for society to allow this kind of behavior.

smoovb• 4 years ago

How much of $100 bill use is for legitimate reasons versus illicit ones? If the overwhelming majority of the transactions are illicit, it makes sense to ban the $100 bill.

JustLurking20224• 4 years ago

It's a service specifically designed to facilitate money laundering. It's a bit like running a business that produces paperwork to make stolen cars indistinguishable from legal ones - there's no reason such a service should be allowed to exist.

devoutsalsa4• 4 years ago

So are casinos, banks, money exchanges, and hot dog stands. There are tons of reasons for wanting privacy that have nothing to do with money laundering. Avoiding kidnapping & ransom because someone can’t see the size of your crypto wallet for example.

angrycontrarian• 4 years ago

People should have a right to privacy. That includes financial privacy.

realce7• 4 years ago

Then produce distinct legislation that bans the specific practices used, otherwise it's just giving preference to currently entrenched forms of money laundering.

It's not illegal whatsoever to mix up my dollar bills with a group of other people and get the same amount out that I put in. Such a statement is ridiculous.

houstonn2• 4 years ago

It's a service specifically designed for privacy. A human right.

peyton• 4 years ago

Can’t law enforcement use search warrants in their own jurisdiction?

immigrantheart• 4 years ago

Properties in the USA, laundry, deli, dry cleaners, often use for money laundering.

redox99• 4 years ago

That's like saying knives are designed to facilitate murder.

TC is made for privacy, which either is or should be a basic right.

Without tools such as TC if I send you money, show you some POAPs[1] I own, or otherwise interact in any way with my crypto, it is fairly simple to deduce or make educated guesses of how much crypto I own, who I send it to or from, and more. This has serious implications not only for privacy, but for safety reasons too.

TC makes it so you can transfer from your cold wallet to your hot wallet, without trivially revealing what your cold wallet is (and thus your funds).

Furthermore TC also allows you to keep a receipt of these anonymous transfers, so you can in the future prove the origin of your funds or reveal such transactions.

[1] https://poap.xyz/

zionic4• 4 years ago

It's a service specifically designed to facilitate money laundering.

That’s like saying TLS was designed to protect CP.

Privacy =/= laundering

miguelmota• 4 years ago

Why do you use a pseudonym on here instead of your real name? Oh right because you care about privacy. Same reason tornado cash exists. Playing the ML card is like saying Tim Berners-Lee invented the internet to facilitate digital crime.

speedylight• 4 years ago

You could also say that Silk Road was an E-commerce business that might’ve been used to sell drugs, who knows!

x86x879• 4 years ago

Not one to defend Silk Road, but pause and think about it for a second: it enabled you to buy something deemed illegal by the authorities (drugs) in a safe manner and the products bought were higher quality than what you could buy on the street. Why was it a problem to begin with and why where significant resources used to shut it down? (Again, not defending it, and the founder was probably a scumbag, I am just asking the question)

People were breaking stupid laws from the 70s established after mass hysteria around drugs by one of the scummies US president ever. More than that, the tax man was not getting its cut.

Now to put things in perspective let's compare to some things US agencies have done in the past: https://en.m.wikipedia.org/wiki/Allegations_of_CIA_drug_traf...

Forrest7778• 4 years ago

It's not a black and white issue; things aren't getting banned because they might be used for illegal purposes, that is even explicitly stated in the article.

woodruffw19• 4 years ago

"Might be used for illegal purposes" is a significant understatement. The chief selling point of Tornado Cash is money laundering, which is in and of itself a crime in both the US and Netherlands.

Normally, there'd be an aspect of plausible deniability: torrent index operators can, for example, rightfully claim that they're facilitating legal filesharing, or that they're entirely agnostic to the content being shared (if all they're doing is sharing URLs). What's key in this case is that law enforcement claims that Pertsev was aware of the crimes his service was being used for. Whether or not that's actually true is up to a court to decide.

TEP_Kim_Il_Sung10• 4 years ago

The chief selling point of Tornado Cash is that it's distributed open-source software, with no man in the middle, no single point of failure.

That's right: Government sanctioned open-source SOFTWARE. Are you sure you want this precedent set?

adastra225• 4 years ago

The chief purpose of a mixer is financial privacy. It’s just that on a public blockchain privacy from snoops and privacy from law enforcement can’t be differentiated.

jnovek• 4 years ago

GP isn’t wrong, though. Even if the primary value of Tornado Cash is dubious, I’m still uncomfortable with the contemporary attitude of “block first, ask questions later (maybe)”.

logicalmonster3• 4 years ago

Normally, there'd be an aspect of plausible deniability

If it was publicly known that you had exactly 1 ton of legally acquired gold in your house, would you feel perfectly safe sleeping at night? Is there not 1 sicko out there that would be willing to torture your family to find the combination to your vault?

Plausible deniability exists here. It's called wanting privacy, and there's perfectly valid and non-criminal reasons to want privacy, despite repeated false claims.

Here is the problem. Many cryptos are not actually anonymous. If somebody has somebody's wallet address, they can look into tracing information about them like their net worth and their purchasing history. Even if you were smart enough to use a different wallet address for each transaction, you inevitably have to spend money to live or send money to others and then you can be traced. As tools grow more sophisticated and more data about wallet address ownership gets out there, the more at risk people will be. And once your identity gets out there, there's no shaking the ability to track it short of some form of mixing or obfuscation. In an of itself, mixing or trading to obfuscate your identity shouldn't be considered a crime or unreasonable in the slightest.

Karunamon3• 4 years ago

Note that "money-laundering" is only a thing you have committed if you are dealing in funds that are the proceeds of another crime. If you are not committing another crime, you are more than welcome to conceal the source and destination of your financial transactions.

The chief selling point of Tornado Cash was addressing the significant privacy problems inherent in a currency based on a public ledger. The idea that we should destroy privacy tools because criminals use them is ridiculous.

JumpCrisscross19• 4 years ago

chief selling point of Tornado Cash is money laundering, which is in and of itself a crime in both the US and Netherland

Also, law enforcement publicly announced Tornado was used to launder billions by North Korea [1]. Months ago [2]. Everyone continued as if nothing happened. This wasn’t based on hypotheticals.

[1] https://hub.elliptic.co/analysis/the-100-million-horizon-hac...

[2] https://www.cnbc.com/2022/06/30/north-korea-likely-behind-10....

hef198984• 4 years ago

Everytime a major bank is caught doing something like that, UBS and Deutsche Bank come to mind, there is huge outcry about the lack of consequences. If a crypto exchange get's caught doing it, and there are consequences, there is huge outcry (among certain people) because there are consequences. Added severity, in the case of tornado cash, was helping North Korea. So not just money laundering but also circumventing sanctions that are taken very seriously by every political power that actually matters. Heck, even the Chinese at least try make it look like they adhere to the North Korea sanctions.

Bombthecat• 4 years ago

Sooo buying and using monero is automatically money laundering?

zionic4• 4 years ago

The chief selling point of Tornado Cash is money laundering

Privacy =/= laundering.

Tornado is/should be perfectly legal to use to pay IRL vendors without revealing the entire contents of your hot/cold wallets.

It’s also useful to move money between hot/cold wallets safely.

Fnoord2• 4 years ago

It can be proven they're not agnostic by doing the bad data test (malware, supposed (not real) child porn). If it gets removed, that's a sign of moderation. And all big, previously known torrent or DHT hosters remove such. Combine it with the fact an %x is illegal content (e.g. copyright infringement) which does not get removed and you have a case.

downandout8• 4 years ago

"The chief selling point of Tornado Cash is money laundering, which is in and of itself a crime in both the US and Netherlands."

You have a fundamental misunderstanding of US law with regard to money laundering. Obfuscating the source of funds, by itself, is not money laundering. Money laundering requires a "predicate offense" - the money that is being laundered must be proven to have had an illicit source. Further, the entity accused of doing the "laundering" also must know that the source of funds is illicit before doing it. Intent to promote the carrying on of "specified unlawful activity" must also be proven in order for a money laundering conviction to occur. You can read the entire statute here [1].

Therefore, the "chief selling point" cannot be money laundering, at least under US law, because the contracts were deployed with no prior knowledge of how or by whom they would be used. One cannot form intent without prior knowledge. The chief selling point was anonymity, not money laundering, which has a highly specific legal meaning.

[1] https://www.law.cornell.edu/uscode/text/18/1956

unboxingelf• 4 years ago

  The chief selling point of Tornado Cash is money laundering

Firmly disagree. The chief selling point of Tornado Cash is a mixer. Please see my reply to essentially this same misconception a month ago, which includes concrete, legal use cases:

https://news.ycombinator.com/item?id=32443738

ok1234563• 4 years ago

The chief selling point of Tornado Cash is money laundering

The same thing could be said about paper money.

ouid2• 4 years ago

You seem to think that freedom means a world in which you are allowed to hide your assets from the government. You have never been allowed to do that. You're going to have to change the law, and because you live in more or less a democracy, you're going to have to convince people that its good to change the law.

TEP_Kim_Il_Sung10• 4 years ago

For the time being the government has yet to decide wether crypto is money, a currency, an asset, or a security. Instead it has been going after people for all of them.

bruiseralmighty6• 4 years ago

History did not start in 1913. Income is not an asset, they have been two different things for longer than the United States has existed as a country. Most governments in recorded history have managed to exist without taxing income.

It would in fact be better live in a country with financial privacy where assets form the tax base instead of income. In terms of convincing the public, I think time will do the former and education the later.

marginalia_nu• 4 years ago

This is a problem with law enforcement in general: they are lazy and seek to have automated solutions to so much of what used to be called police work. This applies to warrant-less wiretaps, pulling information on people from 3rd party data brokers to side-step warrant and FOIA requirements, and more.

The flaw with this line of reasoning is that behaviors have changed. In the past, when the police did "police work", people had no choice but to meet in person to discuss their criminal enterprises. You could follow them, and listen in. Many illicit schemes also left a trail of paper that needed to be stored in physical space.

It's not that the police have gotten lazy, it's that if you expect criminals to hang out in a shady dockside speakeasy like they did when Al Capone ran the town, you're simply not going to find anything.

This is a real tricky problem to which I'm not sure there are good solutions. There's a mounting conflict of interest upholding the law on the one hand, and the interests of law-abiding citizens on the other.

jmyeet• 4 years ago

You have to remember that access to the US financial system is a privilege not a right. To be granted that privilege, a financial institution has a number of obligations. Thesee include various KYC/AML obligations.

So this isn't Tornado Cash "might be used for illegal purposes" so much as it's clear evidence they're failing to meet their legal obligations.

There's a larger point here too: as much as proponents tour crypto's extragovernmental status, it would take very little effort by governments to completely cripple any crypto assset in practical terms.

bruiseralmighty6• 4 years ago

So proposing a hypothetical. If the only issue here is obligation to the U.S. financial system what if the only on-off ramps to e-coins were cash only?

So as an individual, I convert my cash to e-coins through some e-coin dedicated ATM-like machine. And I can redeem my e-coins for cash at another e-coin-ATM somewhere else (maybe anywhere in the world).

Would coin pools like Tornado Cash then be acceptable? It would not be tied in any way to the credit or banking systems, it takes cash only, and then just a basic utility internet connection. Maintenance for the machines and paying the internet utility would just be a fraction of a percentage fee on each transaction.

Now all e-coins would simply exist as a privacy themed alternative ecosystem to cash.

Since we are not joining the U.S. financial system, these e-coins should not be expected to have any obligations to that system correct?

0x_rs• 4 years ago

Criminals are most certainly going to get away with it regardless of how many restrictions and surveillance you apply to the little people, as they have the means (capital) to do so. I don't want to stretch it too far, but the current rules seem nearly purposefully pointed towards the least effort category. There's quite a lot of coverage on this matter, some (and a lot in the cryptocurrency scene) like to cite works from Ronald F Pol who has done a lot of heavy handed criticism on AML et cetera (as far as claiming less than one percent of real-world regulations effectiveness), these claims can be disputed, but it's apparent even to mainstream publications most unlawful flows are uninhibited and the approach is ineffective, expensive and dangerous.

https://www.economist.com/finance-and-economics/2021/04/12/t...

https://en.wikipedia.org/wiki/Danske_Bank_money_laundering_s...

croes• 4 years ago

Are you sure they are lazy or are they just underfunded and with to few personnel?

A4ET8a8uTh06• 4 years ago

It probably depends. I live in Chicagoland. Cops here are a lot of things, but I can't honestly say they are underfunded. The pension alone is likely worth the risk ( source: couple cops in my extended family ) even if money is not staggering ( and it still not on the low end by any means ).

But to go back to the original query. It is just so much more easier to click couple of buttons than go somewhere and ask questions. It is cheaper too. The convenience trumps most of the other reasons. The same goes for privacy. The convenience killed it.

Fnoord2• 4 years ago

If its used for a high percentage of criminal purposes (for example 90%) banning is legitimate.

Also, who are these "investors"? They're speculators. When you speculate, there's risk involved. This is one of them. This case is an unnecessary burden on our legal systems, I hope it gets thrown out of court ASAP.

Sir_Liigmaz• 4 years ago

The USA PATRIOT Act requires every financial institution and money service business have an AML department. There are thousands of people in the US that are paid to look at your bank account and decide if you've been naughty or not and narc to the feds if you have. This is happening everyday. We are already living the surveillance state.

barelysapient• 4 years ago

At this point, failure to comply with the statute means a violation of law; regardless if any criminal laws were observably broken or not.

davidguetta2• 4 years ago

wait what ? literally the entire point of financial regulations is to avoid it to "possibly be used for illegal purposes". Starting with the very basic KYC regulation, or the fact that in many countries cash transaction above a limit are forbidden.

I'm all about privacy and anonymity of transactions personally, but tornado investors going all "surprised pikachu" right now after a more-than-previsible ban is a bit laughable...

jjtheblunt• 4 years ago

they are lazy

houstonn2• 4 years ago

A question for those in this thread who want to ban a privacy service because it's utilized for unlawful activity:

What's your opinion of Tor?

gerikson2• 4 years ago

Does anyone have a link to the suit itself ?

haasted• 4 years ago

I believe it's this : https://storage.courtlistener.com/recap/gov.uscourts.txwd.11...

Courtesy of https://web3isgoinggreat.com/?id=coinbase-funds-lawsuit-agai...

gerikson2• 4 years ago

Thank you!

mzs• 4 years ago

The complaint is linked here, you can make a free trial account: https://www.law360.com/articles/1528566/attachments/0

https://www.law360.com/articles/1528566/coinbase-backs-suit-...

turdnagel• 4 years ago

This is definitely a pandora's box type issue. I believe it is different from the "code is speech" series of arguments around PGP because a deployed smart contract is not merely source code / compiled bytecode, but also a wallet containing funds. Of course, you still need the Ethereum "world computer" to make it run, and Tornado Cash is not very helpful without a significant amount of liquidity to sufficiently provide cover for people who want to obfuscate the source of their funds. These issues are likely to arise in court and I don't believe the conclusions will all be favorable to crypto supporters because I don't think the situation is as clear cut.

dcolkitt8• 4 years ago

When a smart contract is deployed, literally all that happens is that the code is broadcast to the network. It is true that the contract itself has a wallet and runs operations, but it operates autonomously outside the control of the person who deployed the contract.

If a smart contract does something illegal, the person who deployed it has no more responsibility than if someone does something illegal with encryption software downloaded from Github. The only responsible part you could really argue for is the Ethereum node operators, since they're the ones actually carrying out the illegal computation. But is the government really going to outlaw the Ethereum network?

Jasper_2• 4 years ago

Here's a thing: when technology is designed in a way that makes it hard to work within the bounds of the legal system, it's usually the case that the legal system wins, not the technology. The view of the legal system is focused around people and their intentions, regardless of how much you try and confuse things with technology.

They will most likely view the smart contract and its wallet as one entity, despite that being technically not how it works technologically. Because as many people have tried and failed to figure out over the years, laws are interpreted by juries and judges, not computers. Technological roadblocks are things they don't have any problems jumping over, and deliberately trying to add roadblocks like that with the imagination they're untouchable also tends to piss them off even more.

vorpalhex3• 4 years ago

If a smart contract does something illegal, the person who deployed it has no more responsibility than if someone does something illegal with encryption software downloaded from Github.

If I rig up my car to explode when someone walks by whistling the right tune, am I without responsibility? I didn't blow up the car.. the car blew itself up.

Obviously I'm at fault. There is no debate here. Any automation you create is acting on your behalf - and you are liable for it. If I hire a hitman.. I am guilty of murder.

AI or software isn't some clever loophole here. If you deploy an autonomous money laundering system.. you are doing money laundering.

programmarchy2• 4 years ago

If Tornado Cash could be banned, couldn't the same logic be used to ban Tor?

The former obscures financial transactions, and the latter obscures communications, but there's a similar principle in play.

kibwen• 4 years ago

The US military itself uses Tor. They don't want to ban it, because even if the traffic on Tor is illicit, it still serves to mask the military's own traffic. Don't forget that Tor was originally developed by the US Navy.

realce7• 4 years ago

I hear NK uses it too, it should probably be made devastatingly illegal therefore.

bitxbitxbitcoin4• 4 years ago

I’d be willing to bet there is US government black budget money that moved over Tornado Cash, too. The issue then becomes that Tornado Cash wasn’t originally developed by the govt and whatever further implications that has.

netheril96• 4 years ago

That is the point of your parent comment: defeating their argument by their logic. To be logically consistent, the US should either ban both Tornado Cash and Tor or allow both.

iotku• 4 years ago

The US military itself uses Tor. They don't want to ban it

That's not really any reassurance in the long term, if they find a better/different solution that goes out the window.

JumpCrisscross19• 4 years ago

couldn't the same logic be used to ban Tor?

No. Despite attempts to conflate code on a blockchain with code as a concept, the code comprising Tornado Cash hasn’t been banned. You can publish it. Hell, you can re-deploy it, though that would be stupid.

programmarchy2• 4 years ago

Right, I was referring to the wholesale banning operation of the service, not the source code. Sure, you can print the source code on a t-shirt or something like DeCSS, but that's less relevant.

yieldcrv4• 4 years ago

This is the least spineless thing Brian Armstrong has ever publicly done

And I think we should commend him for that

since there really are consequences for his relationship with the government and Coinbase’s relationship with the government

roleplayer• 4 years ago

Missing from this conversation is the fact that TC was specifically designed to be able to prove your input/output if law enforcement requests it.

dannyw6• 4 years ago

Also, TC took zero fees, had immutable smart contracts with no privileged roles or admin keys, etc, is open source.

It is code.

capableweb7• 4 years ago

I used Tornado Cash (non-US citizen here) for hiding transactions from the public (not hiding from the government), and when I filed my taxes, I still accounted for everything that is stored there + transacted via Tornado Cash, just like I do for my bank account. Appendix contained instructions for how they could access the proof of my transactions and accounts to verify themselves.

zeusk4• 4 years ago

I used Tornado Cash (non-US citizen here) for hiding transactions from the public (not hiding from the government)

And how exactly does your bank account publish your transactions to the public?

SpicyLemonZest2• 4 years ago

I think the crypto framing obscures the story here. If the government issued sanctions against a traditional financial organization engaged in money laundering, and then Goldman Sachs bankrolled a lawsuit arguing that the organization is allowed to engage in money laundering due to some quirk of the organizational structure, everyone would understand what's going on and nobody outside of the finance industry would be on the pro-lawsuit side.

dannyw6• 4 years ago

The sanctioned entity here is a piece of code that uses zk-SNARK cryptography, in a permissionless and immutable way. There are no admin keys, there is no ownership, it is code.

It's not an organization. This is more like the FBI banning GPG because terrorists use it.

FTA:

They contend that the Treasury Department lacks the authority to restrict access to a software program.

This is the point. No one would have batted an eye if OFAC sanctioned addresses that used TC to launder money. Nobody would have batted an eye if the FBI prosecuted criminals for using GPG to plot a crime.

But what happened here is akin to the FBI, using powers that it hasn't been granted in law, to ban GPG.

x86x879• 4 years ago

Hahaha... you cannot make this thing up:

https://en.wikipedia.org/wiki/Pretty_Good_Privacy#Criminal_i...

intrasight10• 4 years ago

Code has been, can be, and will be sanctioned. Will they be successful is a different question.

The SEC is well-funded, has a strongly supported mandate, and has a long arm. They are playing a long war of attrition.

SpicyLemonZest2• 4 years ago

Tornado Cash is obviously an organization. This was clear from their website before it was taken down, and you can still see from their Medium blog history (https://tornado-cash.medium.com/) that they consider themselves to be a "we" who can take reports, make governance proposals, etc. The people who've told you otherwise are playing shell games (and sometimes outright lying) to advance their financial interests.

verdverm2• 4 years ago

They sanctioned wallet addresses which are not the same as the code

helen___keller3• 4 years ago

I kind of agree that Treasury should not have exactly this power to ban Tornado protocol. However, I believe Treasury certainly has the power to ban all transactions with networks hosting money laundering protocols.

It would certainly be worse for crypto if it were illegal to buy sell ETH and friends because their networks host Tornado protocol. I see this attempt to moderate the network itself as “going easy” on crypto investors.

The crux of the issue comes down to moderation. In a sufficiently large and complex network, moderation becomes a necessity not an option. This won’t be the last case.

Regulators generally strike when sufficiently popular technology makes it sufficiently easy to perform sufficiently damaging illegal activity.

dannyw6• 4 years ago

Moderation is generally not required under US law.

For example, Section 230 of the Communications Decency Act provide safe harbor provisions: 'No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider'.

It doesn't matter if I run a site with 10 users or 100 million users: the law's provisions and protections are the same.

You are right that regulators generally strike when there is a critical mass. However, my 2c is that this is not backed by statue, and US Treasury does not have the right to sanction software code. They can certainly sanction users who use TC for money laundering, but code itself?

That's like sanctioning PGP or end-to-end encryption...

helen___keller3• 4 years ago

Sorry to be clear, I’m not claiming moderation is legally required, I’m claiming it effectively becomes necessary for a network to avoid stepping on landmines.

For example, it’s impossible to run a social network website of 100 million users without users uploading illegal content. Moderation is a necessity to avoid being taken down by the feds for hosting illegal content.

I agree that treasury doesn’t have the right to sanction code. They do have the right to ban exchanges from exchanging ETH. However, nobody wants that, so they’d rather try and extend their powers to effectively become ETH moderators.

dcolkitt8• 4 years ago

The reality is Treasury does not have the political capital to outlaw Ethereum. It's a $200 billion asset that one in ten Americans and many of the largest pensions, hedge funds, and Biden's largest donors are invested in.

helen___keller3• 4 years ago

Yes. That’s why they would rather try and moderate crypto networks rather than ban.

If they don’t succeed, I’d expect more heavy handed attempts by other branches of government.

I don’t think the government will ever give up, in large part because I think there is political capital and mandate to regulate crypto (just not ban it). If crypto crashes even further, a full ban might be possible some day.

cdiddy24• 4 years ago

Tornado Cash has a great feature that you can use to prove the source of funds that were withdrawn from it as needed. This would allow exchanges to implement something where funds from Tornado could have to provide this proof before depositing. It could be fully compliant with both privacy and what exchanges/governments want. Coin Center does a great write up of it here, under "Compliance Tool"

https://www.coincenter.org/education/advanced-topics/how-doe...

NelsonMinar• 4 years ago

Mixers never fail to astonish me. They are explicitly a product to facilitate money laundering. They are marketed as a way to wash illicit funds. And then the folks who run them get mad when law enforcement tries to shut them down?

georgyo• 4 years ago

I think it is more crazy that that are so openly breaking the law.

The same is true with all the loto and gambling crypto sites. They run without any oversight and are blatantly breaking the law.

x86x879• 4 years ago

which law are they breaking? in which jurisdiction?

cdiddy24• 4 years ago

They are explicitly a product for user privacy. Given that the depositor can prove the source of funds put into tornado cash via a zk-proof there is no reason that this should be shut down.

ASalazarMX• 4 years ago

They are explicitly a product for user privacy

That's the facade. In my experience, Bitcoin is still the main ecoin demanded in phishing/ransomware incidents, even when more privacy-friendly ecoins exist. A tumbler's purpose is distorting Bitcoin's public blockchain (one of its core tenets), and that's very attractive to criminals.

seibelj• 4 years ago

VPNs are "data mixers" - by combining all your traffic with others, it becomes harder to determine who sent which packets.

Honestly, why can't we just have the government know every single website we visit immediately? We all have nothing to hide

JumpCrisscross19• 4 years ago

VPNs are "data mixers" - by combining all your traffic with others

If a VPN is used to help North Korea, and the developers won’t or can’t shut it down, yes, it will be sanctioned. More broadly, speech is generally protected under U.S. law in a way financial transactions are not.

saghm• 4 years ago

"Data laundering" is not against the law though; money laundering is

yieldcrv4• 4 years ago

People aren't surprised that they're trying to shut them down, the concept gets more and more resilient with every.single.enforcement.action and so the enforcement actions have to follow the law, that's what we're talking about here, in court.

Consultant32452• 4 years ago

Who do you believe launders more money: all crypto mixers combined or the US intelligence community?

null0pointer3• 4 years ago

Has anyone done research on whether more financial crime happens in crypto or traditional finance? I'd be interested to see the result, adjusted for market cap or daily transaction volume or whatever makes the most sense.

zionic4• 4 years ago

They are explicitly a product to facilitate money laundering

How is HN so consistently cryptophobic?

Imagine the reaction you’d get here suggesting say, E2EE is “explicitly a product for {crime}”. You’d be rightly mocked, but throw in crypto and it’s like 75% of the people here lose basic reasoning skills. I’d be less frustrated if it wasn’t so common.

qeternity4• 4 years ago

No, it’s like saying E2EE encryption is designed to secure private communications between two parties, which is what it’s designed to do.

Mixers are designed to facilitate money laundering. You can claim it’s for legitimate privacy, etc but it doesn’t change the fact that it’s money laundering.

jbverschoor• 4 years ago

Would you like it if you pay for a burger somewhere and this person can see EVERYTHING you’ve ever did financially?

Or if your employer pays you, and decides to kick you out because he doesn’t agree with some transactions you made?

efdee• 4 years ago

Then maybe don't pay using a payment system that was designed in a way that makes this one of its most prominent features?

max_• 4 years ago

The internet never fails to astonish me. Its explicitly a product to facilitate child porn.

It should be shut down.

tmpz222• 4 years ago

Can anyone defending Tornado Cash provide a concrete example of mixing crypto revenues in a way that is not clearly illegal? I've scrolled this whole thread, and there are a lot of people defending it, but none of them provided a full e2e example of

"I sell x to y, y can only use crypto, y will be persecuted if I don't obscure my transactions from z, so therefore this is a good thing"

Yes we can all do the hypothetical "dissident in AUTHORITARIAN_COUNTRY needs to buy x and will totally be persecuted otherwise" but I want an actual production example not a moral whataboutism.

bornfreddy3• 4 years ago

From the article:

One plaintiff in the lawsuit is a crypto investor who used Tornado Cash to send funds to support the Ukrainian war effort, hoping to preserve his anonymity and avoid retaliation from the Russian government.

tmpz222• 4 years ago

Ok so a user who already has crypto and doesn't want to convert it first (fees) may be encouraged to mix it (privacy) and that is a legitimate usecase. That makes sense to me, though it seems like a very rare event that should not be the sole basis for the underlying platform.

Also I should've read the full article first.

null0pointer3• 4 years ago

Although I agree that this is a morally good usage of TC, I think that given the intent of using TC is to avoid retaliation from the Russian government it would probably be considered illegal in the users jurisdiction.

A better example might be to pay for a legal service without revealing your entire wallet balance to that service.

aeturnum• 4 years ago

Though I personally support breaking Russian law in this case - I also think this is almost certainly in the "clearly illegal" category for Russian law.

yieldcrv4• 4 years ago

Oh this NYTimes article doesn't go into detail but Coinbase's blog entry about them spearheading the lawsuit does have specific use cases, and the associated court filing has even more use cases, that are not theoretical at all.

They all do it for privacy. Someone with a publicly labelled address doesn't want people watching them to know they're making a large purchase, so funds go in through tornado cash, and out to a new address nobody is looking at.

If you are not aware, Tornado Cash already comes with tools to solve investigative zeal, anyone audited can prove the prior source of funds with Tornado Cash, at which point the investigator can tell if they were clean or not, as opposed to just assuming because they aren't familiar with "a concrete example of mixing crypto revenues in a way that is not clearly illegal"

https://storage.courtlistener.com/recap/gov.uscourts.txwd.11...

lawn2• 4 years ago

Do you know that crypto is normally completely traceable?

So if I for instance withdraw 100 million from an exchange, in a completely legal manner, and then visit a store or webshop to buy something with the same funds, then the store now knows that I have 100 million dollars?

Mixing can be used for self protection.

mrsteveman1• 4 years ago

So if I for instance withdraw 100 million from an exchange, in a completely legal manner, and then visit a store or webshop to buy something with the same funds, then the store now knows that I have 100 million dollars?

The more common this example of legitimate use becomes, the less useful it is, defeating the purpose.

If it becomes common for crypto known to have come from Tornado to be there because the person is concealing ownership of a large amount of crypto, the store can infer the same thing the previously could see on-chain: this person probably has a large amount of crypto. And then all the same risks apply, albeit with a minor unknown as to the amount.

But since we're basically talking about a "rubber hose" attack here it doesn't really matter if they can directly see it on-chain, they're still going to assume it and likely do the same thing.

nevi-me• 4 years ago

I get paid in crypto. My colleagues don't know how much I earn. If any of them discovered the address I'm paid into, they'd know my salary by looking up my address.

I see the need for privacy in this instance.

letsgo39• 4 years ago

I just want to say, I find it very Orwellian that HN shuts down immediately any conversation about theft of IP through these 'archive.ph' links, and even removes the 'reply' button to ensure so.

Just watch how quickly this comment will disappear or get downvoted.

dang• 4 years ago

(FWIW, users flagged your comment.)

Could you please stop creating accounts for every few comments you post? We ban accounts that do that. This is in the site guidelines: https://news.ycombinator.com/newsguidelines.html.

You needn't use your real name, of course, but for HN to be a community, users need some identity for other users to relate to. Otherwise we may as well have no usernames and no community, and that would be a different kind of forum. https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme...

2OEH8eoCRo0• 4 years ago

Have your cake and eat it too. Files lawsuit to continue breaking the law.

I suppose the lawsuit is a good thing. The government will have to defend their decision in court which will strengthen their position regardless.

siilats• 4 years ago

Look treasury can ban Bitcoin addresses and then make tumbler not accept incoming money from certain addresses. But if they haven’t done it they cannot go retroactively say tornado cash laundered North Korean money. If the address was obviously North Korean treasury should have banned it.

wollsmoth3• 4 years ago

I think my crypto info is behind the times.

Can someone explain to me why people don't just exchange crypto for monero and then back if they want to "wash" it?

chizhik-pyzhik2• 4 years ago

Tornado is nice because you can stay entirely within the Ethereum blockchain- no need to involve a centralized entity like an exchange to facilitate this.

It's also arguably more private than monero. Tornado uses zk math instead of coinjoin; tornado also sticks to only a few values (1 eth, 10 eth, 100 eth...) which minimizes traceability

martinko• 4 years ago

Generally you need to use a custodial exchange to do this, which creates a point of failure/censorship. Doing this onchain / trustlessly on protocols such as thor have significant liquidity limits afaik.

wollsmoth3• 4 years ago

I thought you could use something like uniswap which should avoid that I think? Haven't tried myself.

from• 4 years ago

Changenow and Morphtoken have very high slippage when you get in the millions of dollars also these are (temporarily) custodial exchanges who could basically take your money and say GFY. Coins from these exchanges are tainted anyways so it doesn’t really make a difference from a laundering perspective along with the fact that the fees are higher.

LatteLazy2• 4 years ago

This is effectively a test case for banning Monero etc. This is similar because it's just a tumbler, not a currency etc with a Tumbler built in.

wollsmoth3• 4 years ago

Well idk how one would go about banning Monero. You can ban it from exchanges that connect with the banking system but via decentralized exchanges it's still possible to convert.

colinsane2• 4 years ago

the Ethereum client ecosystem is one of the most robust. yeah, one can go eth -> zcash/monero back to eth, but that’s like a day-long process once you factor in blockchain syncing and blocktime/transaction settlement. TC is/was 5 minutes to enter and 5 minutes to exit.

intrasight10• 4 years ago

The "we are not a person or organization" argument sort of breaks down once you file a lawsuit.

chizhik-pyzhik2• 4 years ago

The argument made by the plantiffs is that they were harmed by the Treasury Dept's action. One of the plantiffs deposited funds into Tornado for personal privacy, and now cannot legally access these funds.

https://storage.courtlistener.com/recap/gov.uscourts.txwd.11...

null0pointer3• 4 years ago

Is it possible the court will just say "Plaintiffs get a one-time opportunity to declare the source of and withdraw their funds from the contract"?

I don't know if this is the sort of thing a court can do but it seems like the obvious solution to eliminate the damages to the plaintiffs while keeping the sanction in place.

everfree11• 4 years ago

Serious question: Why?

The suit doesn't represent that Tornado Cash itself is a legal person, in fact it represents the opposite. "Tornado Cash" is not the plaintiff.

Animats• 4 years ago

Does TornadoCash still need people to run it? Or is it just contracts in the Etherium blockchain?

verdverm2• 4 years ago

It is autonomous but relies on people to create liquidity

everfree11• 4 years ago

The part that was blacklisted was just the contract addresses.

bruiseralmighty6• 4 years ago

Hasn't precedent already been set for privacy protocols? I know the government tried to stop encryption by listing it as a munition, but they eventually lost that fight on first amendment grounds. It is hard to argue that code is not a kind of speech or expression and thus it gets some of the highest legal protection possible under U.S. law.

Tornado Cash is just a coin mixer implemented through smart contracts yes? The 'coins' themselves already enjoy some first amendment protection by being built on top of the protected encryption protocols. The smart contract itself is just another communication protocol defined in code. So it seems patently obvious that TC is allowed to exist under U.S. law.

The only remaining question is whether anyone can be allowed to use it. We actually have to get deep into first amendment jurisprudence to answer that question. Generally speaking all speech is permitted but, when it is paired with conduct, the conduct can be regulated by time, place, and manner. This at first appears a simple distinction for us. Users of TC or any e-coin standard are _conducting_ transactions. But this is thorny.

Commerce used to be conducted entirely physically with an exchange of cash. Then it was done with an exchange of electronic funds on a banks balance sheet; essentially a change on two different excel spreadsheets. But the btc-protocol and its derivatives don't function like this. They use a ledger. When we transact in e-coins we don't exchange anything. No digital coins fly from my computer to yours or vice versa. Rather all that happens is a message is sent to a public server which contains enough information to allow that server to determine that we both agreed to send that specific message. The server then updates the ledger and publishes this change to other servers hosting the ledger so there is agreement that we exchanged value.

It's not actually 100% clear that when communicating this way we have conducted anything. Sending encrypted messages like this has been determined to be first amendment protected activity as pure speech. Indeed we wouldn't have an internet today if it weren't. Having a message be encrypted inherently provides privacy and precludes restrictions on a message's content. Even when that message's content includes information to exchange value. Citizen's United also has some precedent over whether speech + conduct regarding money transactions are permitted speech when that speech is political in nature.

This leaves us only with the few recognized non-speech categories with which to regulate pure speech:

lewd, obscene, or pornographic content; defamatory content; insulting or “fighting words”; expressive content that tends to inflict injury; speech that incites an immediate illegal conduct such as riot or violence; speech that poses an imminent threat to public safety or national security; false or misleading commercial advertising; and perjury.

There are a few categories here that may help us. Inciting immediate illegal conduct and imminent threat to public or national security. To qualify as incitement to illegal or a threat to public safety the speech has to pass the 'clear and present danger' test. This test has two parts:

* first, the speech must impose a threat that a substantive evil might follow

* second, the threat is a real, imminent threat.

This test is extremely hard to meet and just because the TC protocol is may be or even if it is likely to be used for money laundering it will likely never rise to the threshold of this test in a U.S. court. Cases where speech does meet this threat are specific threats or instructions. If TC included specific instructions on how to evade law enforcement then that may qualify.

This leaves only threats to national security as a legal basis. We have to begin by saying that many of the use of national security as a means to restrict the rights of Americans has an extremely checkered past. These were the arguments that bullied journalists under the red scare, interned the Japanese in WWII, attempted to stifle the pentagon papers after the Vietnam War, maintained the patriot act of 2001, lead to secret courts with secret evidence, torture, suspension of habeas corpus, etc. However, the standards for what constitutes a threat to national security have been much degraded in the past two decades. You could probably convince a judge or even SCOTUS that the use of TC by foreign hostile powers like North Korea and its potential to be used as a tool of terrorism from the likes of Iran and ISIS constitute a threat to national security. But arguing this not only degrades your moral character, it is also unlikely to be effective in the long term. We did reinstate habeas corpus, we un-interned the Japanese, and we did publish the Pentagon papers. Hopefully we will also get rid of the Patriot Act in the coming decades. And even if TC was determined to be a threat to national security, that determination would likely one day be reversed as an understanding of the technology and its necessity aged into the judicial system.

ESTheComposer• 4 years ago

Love that a large chunk of negative sentiment comments here are from one private equities trader. Pretty telling imo.

Anonymity is not a crime

intrasight10• 4 years ago

"Tornado Cash is not “property,” a “foreign country or a national thereof,” or a “person” of any kind under IEEPA."

The president has much discretion here. That was the whole idea of IEEPA. I think the best case outcome of this lawsuit to crypto is that courts just toss it. Worse case is that IEEPA is effectively amended to say that a DAO is a person.

secondcoming• 4 years ago

Why can the NYT still use the term 'blacklist', when it has been purged from Software?

anotherrandom• 4 years ago

It hasn't been, it is still widely used. The fact that people outside of the software world are unaware of that even happening shows how few people actually hopped on board that train

colinsane2• 4 years ago

cryptocurrency is a challenge to the state. Bitcoin’s first block quotes a news headline “Chancellor on brink of second bailout for banks” in order to establish the chain’s age. that message isn’t a mistake: Bitcoin emerged to challenge the state’s control over the monetary system.

13 years later we’re all caught up in surface-level details like “is this cryptocurrency thing a security” and “is this cryptocurrency mixer money laundering” meanwhile the basic premise/existence of cryptocurrency has been accepted de-facto.

surface-level regulations just kick the can down the road. beneath that surface is still a massive challenge to the state, only more diffuse, and that interior shapes the surface much more than the other way around. governments need to make up their mind: are they OK with yielding control over the money system, or not?

right now the answer looks like “yes, but we’re going to drag the process out”, which is sort of the worst thing for everyone. drawn-out wars hurt everyone. US ought to either ban cryptocurrency (private currencies) altogether, or step aside and let it happen.

HereIGoAgain• 4 years ago

More power to them. The idea that you shouldn't be able to use something because it CAN be used for crimes is repugnant and dangerous to a free and open democratic society. Plus this is all pretty much settled law is it not?

colinmhayes• 4 years ago

Tornado was used to launder something like a billion dollars by the north koreans. This is not a CAN be used for crimes situation. It was used to facilitate crimes.

psyfi• 4 years ago

Monero.

I_cape_runts• 4 years ago

I take this as an endorsement that it works.

Investors sue Treasury Department for blacklisting crypto platform Tornado Cash

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