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Coinbase funds a Tornado Cash lawsuit in an effort to defend privacy in crypto

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(Kitco News) - Coinbase, the largest cryptocurrency exchange in the U.S., has funded a lawsuit brought by six people, including two Coinbase employees, challenging the U.S. Treasury Department’s sanctions of the Tornado Cash smart contracts. 

Tornado Cash is a mixing service on the Ethereum network that was sanctioned by the Treasury Department in early August, effectively banning U.S. citizens from interacting with the platform. 

More than 40 USD Coin (USDC) and Ether (ETH) addresses that were connected with the service were also added to the list of Specially Designated Nationals, meaning that their “assets are blocked and U.S. persons are generally prohibited from dealing with them.”

In the statement released by Coinbase, the exchange reiterated that it has no issue with the Treasury “sanctioning bad actors,” saying that it “take[s] a hard stance against unlawful behavior,” but feels that the agency has overstepped its boundaries by taking “the unprecedented step of sanctioning an entire technology instead of specific individuals.”

“The problem here is twofold: (1) there are legitimate applications for this type of technology and as a result of these sanctions, many innocent users now have their funds trapped and have lost access to a critical privacy tool, and (2) we believe the Treasury exceeded its authority, given by Congress, by sanctioning a technology,” Coinbase said. 

According to comments from Coinbase general counsel Paul Grewal, the matter became more personal for the exchange after it realized that employees who had used Torando Cash to donate to Ukraine’s war effort were affected by the ban. 

“We came to understand that we had employees inside of Coinbase who were relying upon Tornado Cash to do things like donate money to relief efforts in Ukraine and to protect their transactions and salary information from prying eyes. Ordinary people doing ordinary things suddenly swept up in designations that had no basis in law,” Grewal said

As one of the leaders in the cryptocurrency ecosystem, Grewal noted that Coinbase getting involved in the case was needed as it is responsible for supporting growth in the crypto sector. 

Powell and Gensler agree: cryptocurrencies need better regulation

Coinbase focused on the open-source aspect of Tornado Cash, commenting that “Sanctioning open source software is like permanently shutting down a highway because robbers used it to flee a crime scene.”

The exchange asserted that “Congress never gave [The Treasury Department] the power to sanction open source software,” and warned that “sanctioning open-source code has a chilling effect on innovation.”

Plaintiffs in the case have alleged that the order from the Treasury Department infringes on their First Amendment rights since Tornado Cash is a tool that supports free speech. 

Coinbase is far from the only critic of the Tornado Cash sanctions, with many in the crypto industry voicing their concerns about the move over the past month. Kraken CEO Jesse Powell previously called the sanctions a ‘knee-jerk reaction’ following the Terra (LUNA) crash, saying that “Regulators are overreacting looking to protect people.”

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