Coinbase, the largest crypto exchange in the U.S., has funded a lawsuit brought by six people, and challenging the US Treasury Department’s sanctions on the Tornado Cash smart contracts. This group of people also includes 2 employees of its own.
Tornado is a crypto mixing service on the Ethereum network that was sanctioned by the Treasury Department in August. The department banned U.S. citizens from using the platform.
More than 40 USD Coin (USDC) and Ether (ETH) addresses that were linked with the service. These addresses were also added to the list of Specially Designated Nationals, indicating that their assets are blocked and U.S. individuals are normally prohibited from dealing with them.
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In the statement released by Coinbase, the exchange restated that it has no issue with the Treasury sanctioning bad actors, saying that it takes a hard stance against unlawful behavior,” but feels that the agency has exceeded its boundaries by taking the unprecedented step of sanctioning an entire technology instead of specific people.
It further mentions a twofold problem.
1) There are legitimate applications for this kind of technology and as a result of these sanctions, many blameless users now have their funds trapped and have lost access to a crucial privacy tool
2) The Treasury exceeded its authority, given by Congress, by banking a technology.
According to remarks from Coinbase general counsel Paul Grewal, the matter became more personal for the exchange after it discovered that employees who had used Torando Cash to contribute to Ukraine’s war effort were impacted by the ban.
The exact words of Grewal:
“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. Ordinary people doing ordinary things were suddenly swept up in designations that had no basis in law”
As one of the leaders in the cryptocurrency ecosystem, Grewal commented that Coinbase getting involved in the case was a must as it is responsible for sustaining growth in the crypto sector.
Coinbase focused on the open-source part of Tornado mixer, remarking that sanctioning open-source software is like permanently shutting down a highway because robbers used it to escape a crime scene.
The exchange asserted that congress never gave the Treasury Department the power to sanction open-source software, and cautioned that sanctioning open-source code has a chilling effect on innovation.
Plaintiffs in the case have alleged that the order from the Treasury Department violates their First Amendment rights since Tornado is a tool that backs free speech.
So far Coinbase is the only one who openly criticizes the ban of Tornado Cash. Many others from the crypto industries are expressing their concerns about the move over the past month. Kraken CEO Jesse Powell formerly called the sanctions a ‘knee-jerk reaction’ following the Terra (LUNA) crash, saying that regulators are overreacting looking to protect people.
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