Have US Crypto Sanctions Gone Too Far?


Photo: Bloomberg/Getty Images

There is something alluring about North Korea for those on the edge of the Western crypto world. Earlier this year, hacker Virgil Griffith was sentenced to five years for helping Kim Jong-Un’s government evade sanctions, while third-largest cryptocurrency issuer Tether decided to fight back. for its right to send money to related entities. Now there’s a lawsuit against the US Treasury as well as Secretary Janet Yellen for the department’s sanctions, which aim to target North Korea’s hacking army but are potentially so broad they border on Orwellian for their potential to stifle freedom of expression.

On Wednesday, David Hoffman, a crypto evangelist and podcaster, and Coin Center, an industry think tank, filed suit against the Treasury Department over sanctions it issued earlier this year against Tornado Cash. , a tool that anonymizes cryptocurrency transactions. According to the Treasury’s Office of Foreign Assets Control, the department’s sanctioning arm, the blacklisting is a response to the Lazarus Group, North Korea’s hacking army which it says stole and laundered some $500 million. The problem, however, is that Tornado Cash isn’t a company or a person – it’s code that lives on the Ethereum blockchain, and there’s no way for anyone to control or destroy the protocol. Since Tornado Cash is not an entity, it cannot appeal. It’s up to people like Hoffman, who claim he can be forced to affirm every year that he’s not a criminal – not because he used it or has a connection to it. North Korea, but because he has already asked someone to send him money using Tornado Cash.

Tornado Cash is a kind of intermediary service, and how it works is simple: someone sends digital currency to a specific Tornado wallet, which then stores the money; afterwards, this central Tornado wallet can return money to the sender, or to someone else, in smaller amounts and at different intervals, making traceability more difficult. That’s basically it. Although US Secretary of State Antony Blinken previously accused Tornado Cash of being affiliated with North Korea, he later backtracked and claimed only that it had been used by the Lazarus Group to help launder it. money.

The repercussions of the sanctions are already being felt around the world. In April, developer Alex Pertsev, who worked on Tornado Cash, was arrested in the Netherlands. (His wife, Xenia, told me today that “he’s fine but still in jail.”) Still, it’s unclear if the sanctions have had any effect on North Korea – and they seem not to. having galvanized only the most ideological corners of the crypto community. . For Kim’s government, the appeal is obvious: Here’s a form of international currency that’s extremely hackable and which, until last year, had exploded in value during the pandemic, giving a country a financial lifeline. otherwise isolated from the rest of the world. For crypto die-hards, the horrific living conditions and nuclear mastery tend to be abstracted in favor of its status as a use case, as if it were a Harvard Business School problem designed to be resolved. If you believe in the central idealism of crypto – that it is a financial way to circumvent governments, central banks and other oppressive entities – then there is no more extreme environment. to prove that your technology only works in this authoritarian regime.

OFAC – which is named as a defendant – is the key to the pressure exerted by the United States on Russia since the invasion of Ukraine, for example, or in the isolation of states like the Iran, Cuba and Venezuela. But the Tornado Cash sanctions, according to an expert I spoke with, are a new form of US blacklisting since they go after specific technology that isn’t necessarily harmful. Roman Semenov, one of the creators of the code, claims that there is no way to stop the anonymization features of Tornado Cash since it runs on Ethereum, the second largest cryptocurrency in the world, and that everyone can use it.

The Hoffman and Coin Center lawsuit shows that the Treasury Department is overstepping its authority by penalizing a technology because of its users. “Making it a crime for Americans to use Tornado Cash because the Lazarus Group used Tornado Cash to further their illicit business is like making it a crime for Americans to use email because the Lazarus Group has used email to further his illicit activities,” according to the suit. “Sometimes good tools are used by bad people.” Hoffman specifically asserts that one aspect of the penalties, which penalizes anyone receives the service’s money, is also harming him through a tactic known as “dusting”, whereby someone sent him a small amount of crypto via Tornado Cash. It’s unclear why he received the money — maybe it was from someone concerned about his privacy, maybe he was a troll — but Hoffman says he has to prove his innocence every year because of it. That would apply to celebrities like Jimmy Fallon and Shaquille O’Neal, who also received money through the service, Hoffman says. “In other words, the Biden administration has made it easy for any bad actor to subject a law-abiding American to potential civil and criminal liability and onerous reporting obligations, through no fault of the American.” , according to the lawsuit.

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