“Give them an inch, and they’ll take a mile”

That’s precisely what is happening with regard to the ongoing crackdown on cryptocurrencies. This should scare us all.

By all of us, I don’t simply mean crypto aficionados, digital asset traders, NFT lovers, and blockchain evangelists. I mean anyone that values financial freedom and privacy. Anyone that places a premium on free speech and free access to public goods.

A Storm is Brewing

On August 8th, 2022, during an otherwise ordinary day, the United States Treasury made an official announcement banning the use of Tornado Cash, a virtual currency mixer that helps digital asset holders preserve some semblance of financial privacy in the world of blockchain. Tornado Cash and other mixers work by blending together vast pools of major digital assets like ETH and USDC and redistributing “new” fungible assets to contributors to scramble information trails on-chain. This helps to obscure and conceal one’s financial dealings.

A few days later, the Netherlands followed up this significant announcement by the United States government by arresting a developer alleged to have contributed a significant amount of the code for Tornado Cash.

The Crackdown

Tornado Cash has been around since early 2019 and has hummed along for over three years, helping users maintain their privacy online. There are other centralized mixing protocols in the blockchain sphere, but only Tornado Cash exists as a decentralized protocol driven by transparent and open source code.

The main argument being made by the governments of countries like the USA and the Netherlands is that Torando Cash and other digital currency mixers can be used to launder money for mafias, cartels, hackers, rogue states, and terrorist syndicates. North Korea alone is thought to have laundered over a billion dollars with Tornado Cash alone. This is made worse by the fact that North Korea has been implicated in several significant exploits of bridges and various other blockchain protocols, like the $100 million Horizon Hack that happened in June of 2022, as well as the infamous $600 million hack of Axie Infinity and its Ronin side-chain.

To be honest, they aren’t wrong. 

Conservative estimates state that over $1.5 billion has been laundered using financial privacy protocols like Tornado Cash, with less conservative estimates exceeding $7 billion in laundered funds.

No reasonable person is denying that tools such as Tornado Cash are not being used with malicious intent to hide ill-gotten gains and “blood money.” That is a problem that we all should be taking seriously and actively looking to address, no matter the mode or means of laundering. Whether it’s artwork, precious gems, oil, or fiat currencies, governments absolutely should monitor and seize capital from known criminals. Instead, they are choosing to punish everyone.

It Doesn’t Add Up

Assuming the primary logic behind the heinous decision to ban Tornado Cash and crush contributing developers to the privacy protocol with the full extent of the law is that it aids and abets criminals. We can then deduce that this logic can and perhaps will be applied to other tools and mechanisms that do the same.

In America, for instance, knives, guns, duffle bags, and ski masks can be used to rob a banking institution. Take it a step further, those same criminals are also using vehicles, public roads, cellular phones, internet data, and other innocuous items that most people use on a day-to-day basis for non-criminal activity.

It sounds absurd, but the worrying thing here is the lack of clearly defined boundaries, which inevitably always leads to a slippery slope sort of situation.

By acknowledging that nearly any item, tool, service, or public good can be used with sinister intent, we can then perhaps agree that it doesn’t make sense to make every last item on the planet illegal based on anecdotal evidence that it might be used for the wrong reasons.

We can also find common ground and state the obvious: money laundering is terrible, and criminals that hurt others in any way deserve to be brought to justice.

Why is This an Issue for Us All?

You don’t need to be passionate about cryptocurrencies, NFTs, or blockchain to be worried about the implications of this latest ban. You don’t even need to know anything about blockchain other than the fact that it is a tool that can improve the way we do business, interact socially, govern communities, and enhance the core infrastructure of the internet.

The real alarming thing about this latest decision by the US government to ban and crackdown on Tornado Cash is that it is the first instance where sanctions have been placed on something that is neither a person nor a corporate entity.

We are witnessing history here. Never before has a line of open source code been sanctioned by the US government.

By this logic, governments can sanction and control any public good.

But what most people don’t recall is that we already fought this battle decades ago. In the 1970s, the NSA was already trying to punish anyone publishing any scholarly publications about encryption. The NSA wanted to ensure that American data was protected while retaining the ability to spy on everyone else, effectively controlling encryption as one centralized entity.

Early encryption proponents saw this as a danger to freedom and democracy and sought to protect the world from the ever-encroaching Big Brother-type state that George Orwell warned us about.

Fast forward to 1997 when Daniel J. Bernstein, a university student at the time, sought to export his encryption algorithm called “Snuffle.” Licencing requirements set by the Arms Export Control Act and the International Traffic in Arms Regulations (ITAR) would have made it impossible for Bernstein to export his encryption code at the time, as all encryption mechanisms were classified in the same category as flamethrowers, grenades, bombs, missiles, and other deadly munitions.

The Bernstein v. United States court case proved to be a monumental shift in policy and has become the de facto precedent revolving around both encryption and open source code. Open source code is said to be protected under the First Amendment in the United States, which ensures free speech for all, among other things.

For that reason, the latest decision to ban a string of open source code is both unconstitutional and worrying for us all.

The Real Motive

It’s not unreasonable that the government wants to stop terrorists and drug cartels from laundering money. But we should persecute individuals, not items or tools used to commit crimes. We’ve never done that before, and it doesn’t make sense to start doing it now.

The more sinister, underlying reasoning behind this slow erosion of financial privacy is to build a more controlled, technocratic state where we have no freedom to conceal our private financial dealings from the government or the general public.

For most of human history, we have used bartering or physical currencies for peer-to-peer transactions without having to involve third parties. This new ruling sets a dangerous precedent. Anyone wanting privacy can be labeled as a criminal.

By normalizing this sort of behavior and language, we make it even easier for the next concession to be larger and more draconian.

If our freedom, privacy, and speech are being limited now, what else will we lose next time?

So we all have to agree not to give an inch on this seemingly insignificant ruling, or else we will give much more than a mile and start to backslide into a more tyrannical, oppressive, and authoritarian society.

Retaining the ability to use privacy protocols, decentralized finance, and peer-to-peer remittance is imperative for humanity going forward. We are still committed to backing and investing in companies that help to ensure this freedom for all.

If you’re interested in learning more about our services and what we can offer your project, visit our website and apply to Work With Us.