On Tornado Cash.
As I am wont to do, I have been discussing the Tornado Cash fallout in various internet chat groups and someone described the arrest of a developer as “some 1984 shit”. This made me pause. Haven’t we already solidly arrived there? Haven’t the collective governments of the world been marching steadily toward surveillance states for decades?
We see this steady encroachment everywhere. In the U.S., these aren’t just 9/11 fallout measures holding over without de-escalation. From the 2020 FinCEN proposal that attempted to lower the dollar thresholds for bank mandated snitching on customer transactions from $3k to $250[1] against a background of inflation to the endless layering of additional reporting and surveilling obligations, including the Corporate Transparency Act (CTA) and Anti-Money Laundering Act of 2020 (AMLA), we see privacy rights repeatedly trumped by *talking points* around terrorism and crime. And all it takes is talking points because no govt official will be stopped from using them by the facts on the ground —which are that there is a lack of correlation between these ever increasing measures and results/efficacy. Meaning, that as we continually ratchet up the compliance burden, it has come with little to no reduction in money laundering and/or terrorism while creating tremendous costs (amirite banker frens). Not to mention the diminishing returns from financial institutions arriving at surveilling and reporting my $5 Arby’s purchase (I am clearly unwell, plz let me be ashamed in private). But over and again we see these measures being introduced and largely passed with privacy concerns being pushed aside “blah blah blah only criminals would oppose this $5 reporting threshold and what if they put that $5 in a terrorist crowdfund” and you likely win the day.
So with all of this building,what keeps playing in my head is “This is the way the world ends. Not with a bang but a whimper.” The incremental erosion of personal liberty and criminalization of privacy marches ever forward. Yet this encroachment has been ongoing without much to stop it.Why does this keep happening without significant pushback, you might ask? Inertia or maybe that the world is terrible and overwhelming and it takes so much effort, and it has to be organized effort, to fight the tide. And I will pause to say hi to Edward Snowden, who tried his best at yelling into the void only to be featured on a John Oliver’s dick pic segment highlighting that Americans only care about surveillance when the government is passing around their noods. [2] Further to the average American only caring about their dick pics getting in the wrong hands, we dont have the benefit most deregulatory efforts do — where you can rely on the TradFi business community to fight pesky and costly compliance initiatives. Last time I checked, it wasn’t a great look for TradFi to fight financial crime regs and none of them have felt like getting dragged on this.
With that doom and gloomy state of affairs, enter crypto, an inherently Libertarian and privacy-centric movement (at least in its purest form as public ledgers could easily be harnessed for “1984 shit” on steroids). Crypto was always destined for a clash with the surveillance state. It has felt inevitable that there would be a stand-off, that the government would try to kill permissionless tech and label privacy preservation efforts as fundamentally criminal. Aaaaand I am pretty sure that we are here and we were always going to get here. With Tornado Cash, we see the sanctioning of a protocol itself, blacklisting of addresses, deplatforming (and arrests) of TC developers and ongoing fallout — and it is all sudden, unprecedented and (I hope) a step too far that spurs multiple constitutional challenges that will serve to draw a line in the sand broadly for individual liberty (queue inspirational music plz).
Constitutional challenges are hard; they can take a long time to play out. And everything is on hold until they do. This is why they are a challenge of last resort. It is the law equivalent of “I want to speak to your manager’s manager’s manager”. In private practice, I always told clients that even if you have a constitutional argument, you never want to be in court having to make it. It is bad for business, expensive and you end up spending years financing the defense of key liberties if you fight. You are undertaking a public good often at your direct expense. It is very noble and altruistic. So we can’t rely on business interest lobbying alone (even ones that are indirectly impacted) and likely need to fight this battle on constitutional grounds with advocacy organizations as our allies.
But here, I believe we have a “bang”; something that jolts people to attention. There are severe consequences at play — strict liability financial crimes are no joke and neither is having your CEX account(s) frozen indefinitely or your centralized stablecoins for that matter. You can see the high stakes in all these rippling overreactions — shutting accounts down that interacted with TC before the sanctions, aggressive compliance flagging due to inadequate precision in screening tools and erring on the side of caution. Individuals and market actors do not want that type of smoke with the government and will react to myopically protect their immediate needs. But here we have an overreach that needs to be addressed (once standing issues are figured out) and the absurdity is being proved out through the dusting and contagion of wallets — you do not need intent to receive the funds to have issues here (I dont have to be sitting around asking for that 0.1 ETH to be sent to my IamabsolutelyKateHudson.ETH address). If there ever was a reason for crypto advocacy efforts to unite around a common principle, it is here. Code is speech. Speech is protected. Take this for the monumental and explosive development that it is. We should not give up this ground, it is, as always, a slippery slope. We should wake up now lest we continue sleeping through the further criminalization of privacy until there is nothing left.
[1] More nuanced than this, applies to certain transactions but making a point here
[2] I am sure you have seen this but worth a revist as it is endlessly demoralizing and makes you really question whether humanity deserves a good future — like all good comedy https://www.youtube.com/watch?v=XEVlyP4_11M
