Tornado Cash vs. U.S. Treasury – Coinbase’s CLO provides clarity! Here’s what you need to know!

Tornado Cash, an open-source privacy tool used by many cryptocurrency owners, has fallen foul of Treasury sanctions. The plaintiffs are now challenging these sanctions, arguing they’re being applied incorrectly. Paul Grewal, Chief Legal Officer of Coinbase, has provided some clarity on the ongoing legal tussle between Tornado Cash and the U.S. Treasury in his Twitter thread. 

All the four arguments outlined by Grewal essentially point towards one central issue: the government’s attempt to apply a property sanctions statute to open-source software, which, according to the plaintiffs, is a misuse of the law. Is it feasible or even valid to apply traditional property law to a decentralized, blockchain-based system? 

Fourfold arguments against sanctions

“The plaintiffs make 4 points here, but they all come down to the same problem. The Govt. is trying to ban the use of open-source software using a property sanctions statute.  Because this isn’t what the law was meant to do, they can’t make the law fit this case.” Paul Grewal

The challenge to these sanctions centers on four key points. Firstly, they argue that owning Tornado Cash’s digital token (TORN) doesn’t necessarily make one a member of the entity “Tornado Cash.” In other words, just because you own the token, doesn’t mean you’re part of the organization.

Secondly, the challenge questions whether these open-source, immutable smart contracts are “property” in the legal sense. Traditional law says property is something that can be owned, controlled, or changed – but these smart contracts can’t be.

Thirdly, the plaintiffs assert that neither the founders, developers, nor TORN token holders have a ‘property interest’ in these smart contracts. It’s like saying you can use a public park, but you can’t claim to own it.

Finally, they argue that by sanctioning Tornado Cash, the government is essentially impinging on free speech rights. Users of Tornado Cash use the software to protect their privacy while making important donations – actions that are protected by the First Amendment.

Also, read – TORN Token Surges 10% Amid Attack Reversal Proposal

Cryptocurrency needs basic legal requirements

Grewal also clarified that the plaintiffs are not demanding special rules for cryptocurrency, as suggested by the government. They are only seeking that the government meets the basic legal prerequisites that Congress outlined before restricting access to a privacy tool that protects legal purchases and donations. 

This legal battle raises some thought-provoking questions. Should traditional property law apply to open-source digital assets? Can ownership be defined in the world of decentralized technology? And does protecting digital privacy fall under the First Amendment? Only time will reveal the answers!