Coinbase is funding a six-person lawsuit against the U.S. Treasury for imposing sanctions on Tornado Cash smart contracts, which have been under scrutiny for their misuse by North Korean cybercriminals who rely on them to conceal criptocurrencies transactions, helping the Hermit Kingdom indirectly fund its nuclear program. The largest exchange in the U.S. says the government overstepped its authority in going after open-source technology and needs to declare unlawful its decision to sanction code.
Tornado Cash, created in 2019, removes traceability on digital ledgers by pooling cryptocurrencies from multiple sources prior to a user's withdrawal of their digital token. The Treasury estimates that over the last three years, North Korean hackers and other criminals have laundered over $7 billion of transactions using the service.
In August, the Treasury Office of Foreign Assets Control blacklisted Tornado Cash and said the service was a critical part of North Korea's overseas collection of funds to support its nuclear program. In an unprecedented move, it added Tornado Cash and associated services to the Specially Designated Nationals and Blocked Persons List, sparking an outcry from the wider blockchain and criptocurrency industry. Vitalik Buterin, the founder of the Ethereum blockchain that runs on, said he had used Tornado Cash to donate to Ukraine. Other advocates said the move violated the free speech protections enshrined in the U.S. Constitution.
On Friday, two Coinbase employees and four investors filed a lawsuit against the U.S. Treasury in Waco, Texas, saying the government was violating the free speech clause of the First Amendment and due process clause by going after a piece of code. There are alternative ways that the government can take to prevent bad actors in North Korea and elsewhere from misusing privacy mixing services, according to Coinbase.
Coinbase said that they have no issue with the Treasury sanctioning bad actors and we take a hard stance against unlawful behavior. Treasury went even further and sanctioned an entire technology instead of specific individuals in this case. Coinbase said that the Tornado Cash smart contracts are neither a person nor property. They are lines of code, not humans, corporations or organizations. They are a privacy tool, a technology that is neither human nor an entity. Many investors rely on privacy mixers like Tornado Cash to protect themselves against hackers and thieves, according to the company. Coinbase said that the sanctions against Tornado Cash have not only blocked this open source technology to U.S. persons, but they have also been scared away from contributing to other important privacy projects, fearful that their code will be sanctioned in the future.