Here’s why Coinbase in funding lawsuit against Tornado Cash sanction

Tornado Cash users haven’t given up on the fight against the sanction placed on the digital currency mixing protocol by the US authorities. CNBC reported Thursday that leading cryptocurrency exchange, Coinbase has jumped into the matter and pledged to finance a recent lawsuit against the Treasury Department over the suspension of Tornado Cash. 

The US Treasury’s Office of Foreign Assets Control (OFAC) banned Americans from accessing or using Tornado Cash in August. The decision of the Treasury was based on the ground that cybercriminals, especially the infamous North Korean hacking group, laundered over $7 billion in cryptocurrency in three years, particularly through the Tornado Cash crypto mixing service. 

Coinbase employees, others file lawsuit against Treasury 

Although the basic crypto transactions are anonymous, the sources are still traceable on the blockchain. Mixing services like Tornado Cash adds more privacy to the transactions by obfuscating the source. Hackers have mostly hidden under this umbrella to get away with stolen funds; hence, the Treasury’s decision to sanction the protocol, which, unfortunately, affected the legitimate users too. 

Filed on September 8th, the lawsuit presented at the U.S. district court in Texas challenged the sanction order on Tornado Cash. The plaintiffs, which reportedly include Coinbase employees, urged the court to revoke the sanction, arguing that the Treasury overstepped its boundary and violated the constitutional rights to free speech. 

According to the plaintiffs’ arguments, the Treasury’s sanction authority does not include smart contracts applications and software code. “Tornado Cash is not a person, entity, or organization. It is a decentralized, open-source software project that restores some privacy for Ethereum users.”

The plaintiffs claimed to have incurred financial losses as their assets are still locked in Tornado Cash. The public-traded exchange, Coinbase, shares a similar view with the plaintiffs and said it would fund the lawsuit. 

Why is Coinbase funding the lawsuit?

Coinbase is among the cryptocurrency firms that have legitimately used and benefitted from the privacy offered by Tornado Cash. One of the senior security risk officers at Coinbase, who’s also among the plaintiffs, had reportedly used the mixing service to obfuscate crypto donations to Ukraine to avoid being targeted by Russian hackers, CNBC reported. 

In a blog post, Coinbase’s founder Brian Armstrong also argued that the Treasury overstepped its boundary by blacklisting a technology rather than specific parties and individuals. Armstrong reiterated that many legitimate users now have their cryptocurrencies trapped in the protocol and cannot access such a critical privacy tool. “[There] are legitimate applications for this type of technology,” said Armstrong. 

Paul Grewal, Coinbase’s chief legal officer, also said the suspension of Tornado Cash was a much larger problem. Grewal believes that it could set “a dangerous precedent — if this code can be designated without any limits imposed by law, any technology, any tool or system could be fair game.”

Grewal likened the situation to a scenario where a law enforcement agency banned the use of highways because it was chasing criminals on the highway. 

The lawsuit marks the first time Coinbase is funding an external lawsuit. The exchange intends to cover all the costs associated with facilitating the court case, including the plaintiffs’ lawyer fees, Grewal said.