U.S. Office of Foreign Asset Control

Coinbase supports new court action to remove Tornado Cash ban

The motion is part of a broader effort to restore internet privacy rights for United States citizens.

The United States Treasury faces a renewed legal challenge that aims to overturn the decision to sanction the crypto mixer Tornado Cash, filed by six individuals backed by the cryptocurrency exchange Coinbase.

A motion for a partial summary judgment was filed on April 5 in a Texas District Court, with the Coinbase-backed plaintiffs moving for the U.S. Office of Foreign Asset Control (OFAC) to settle for the first two counts from its original complaint filed in September 2022.

If granted, it would see the judge rule on some of the factual issues while leaving others for the trial.

The counts claimed OFAC exceeded its statutory powers under the International Emergency Economic Powers Act (IEEPA) and violated the free speech clause of the U.S. Constitution’s First Amendment.

The plaintiffs firstly claimed that OFAC breached a section of the IEEPA that allows the Treasury to take action against the property in which a foreign country or foreign national has an interest.

The motion argued that as the provision only allows the pursuit of property-related action against a foreign “national” or “person,” it doesn’t apply to open-source software.

To strengthen its claim, the plaintiffs argued the 20 or so smart contracts that provide the functionality to Tornado Cash should not be considered property under IEEPA because they cannot be owned:

“An immutable smart contract is incapable of being owned, it is not property and the Department lacks authority under IEEPA and the North Korea Act to prohibit transactions with those smart contracts.”

“No one has the right to alter them. No one has the right to delete them,” they added.

The second main argument put forth is that by banning the open-source code, OFAC is violating the free speech clause of the First Amendment to the U.S. Constitution.

Related: Treasury officials would have done more for national security by leaving Tornado Cash alone

The plaintiffs noted OFAC has the authority to take action against “crypto thieves” like North Korea’s Lazarus Group, but a “total prohibition is thus grossly disproportionate,” as money laundering only accounted for 0.05% of crypto transactions in 2021.

“To ban all uses of Tornado Cash is akin to banning the printing press because a tiny fraction of users might publish instructions on how to build a nuclear weapon,” they added.

The motivation behind the motion is part of a broader effort to restore internet privacy rights for U.S. citizens, the plaintiffs explained. It is the most recent filing since the individuals first sued the U.S. Department of Treasury in September.

The six plaintiffs behind the filing are Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale and Nate Welch. The filing details that most of the group had previously interacted with Tornado Cash.

The legal battle comes as Alexey Pertsev, the creator of Tornado Cash, faces his own troubles in The Netherlands. He has been held since Aug. 18 on a series of money laundering charges.

Magazine: Unstablecoins: Depegging, bank runs and other risks loom

‘Not even a single TX has been censored on ETH’ — Cyber Capital founder

Bons noted that even with 50% OFAC compliance among Ethereum validators, blocks will still be produced within 30 seconds.

Ethereum bulls have hit back against claims the network has become prone to censorship post-Merge, with one arguing that “not even a single” transaction has been censored on the network. 

In a 19-part thread to his 29,100 followers on Oct. 17, Cyber Capital founder and CIO Justin Bons argued that contrary to “what some Bitcoiners are falsely claiming,” not a single transaction on Ethereum has been stopped as a result of Office of Foreign Assets Control (OFAC) sanctions.

Bons was referring to recent reports suggesting Ethereum has become too reliant on OFAC-compliant Miner Extractable Value (MEV)-Boost relays since the Merge.

Last week, it was reported that more than 51% of Ethereum blocks are now complying with the U.S. sanctions after transitioning to proof-of-stake (PoS). 

The crypto-fund manager argued that despite the increasing presence of OFAC-compliant MEV-Boost relays, it only becomes censorship when producers refuse to build on non-compliant blocks, though that would result in forking and splitting of the chain, explaining:

“Even with 50% OFAC compliance, a non-compliant ETH TX will be confirmed within 30 sec! Compared to BTC’s more variable 10min!”

Bons further argued it only takes one contributing validator to include what may be an OFAC-sanctioned transaction in the canonical chain.

“This means that a very small minority of validators/miners can counter such censorship over both ETH & BTC! Easily less than 1% can prevent censorship,” he explained.

Having attributed most of this backlash to “Bitcoiners,” Bons also argued that Ethereum with its new PoS consensus mechanism is “less vulnerable” and “far more secure” than Bitcoin under proof-of-work (PoW) because institutional players are not economically incentivized to try split the chain.

Related: Ethereum may now be more vulnerable to censorship — Blockchain analyst

Ethereum developers have also working to improve Ethereum’s censorship resistance too — with Ethereum developer Terence Tsao of Prysmatic Labs on Oct. 17 announcing that he and fellow developer Marius van der Wijden had begun building a solution to address the issue:

Ethereum co-founder Vitalik Buterin recently proposed a Partial Block Auction solution, where a block builder only has the right to decide some of the contents of the block.

Ethereum research and development organization Flashbots is also looking to soon roll out its fully decentralized and EVM-compatible block builder — Single Unifying Auctions for Value Expression (SUAVE) – in order to combat censorship issues.

On Aug. 8, the United States Treasury Department added more than 40 cryptocurrency addresses allegedly connected to controversial mixer Tornado Cash to the Specially Designated Nationals list of OFAC, effectively barring U.S. residents from using the mixing service. 

‘Not even a single TX has been censored on ETH’ — Cyber Capital founder

Bons noted that even with 50% OFAC compliance among Ethereum validators, blocks will still be produced within 30 seconds.

Ethereum bulls have hit back against claims the network has become prone to censorship post-Merge, with one arguing that “not even a single” transaction has been censored on the network. 

In a 19-part thread to his 29,100 followers on Oct. 17, Cyber Capital founder and chief investment office Justin Bons argued that contrary to “what some Bitcoiners are falsely claiming,” not a single transaction on Ethereum has been stopped as a result of Office of Foreign Assets Control (OFAC) sanctions.

Bons was referring to recent reports suggesting Ethereum has become too reliant on OFAC-compliant Miner Extractable Value (MEV)-Boost relays since the Merge.

Last week, it was reported that more than 51% of Ethereum blocks are now complying with the U.S. sanctions after transitioning to proof-of-stake (PoS). 

The crypto-fund manager argued that despite the increasing presence of OFAC-compliant MEV-Boost relays, it only becomes censorship when producers refuse to build on non-compliant blocks, though that would result in forking and splitting of the chain, explaining:

“Even with 50% OFAC compliance, a non-compliant ETH TX will be confirmed within 30 sec! Compared to BTC’s more variable 10min!”

Bons further argued it only takes one contributing validator to include what may be an OFAC-sanctioned transaction in the canonical chain.

“This means that a very small minority of validators/miners can counter such censorship over both ETH & BTC! Easily less than 1% can prevent censorship,” he explained.

Having attributed most of this backlash to “Bitcoiners,” Bons also argued that Ethereum, with its new PoS consensus mechanism, is “less vulnerable” and “far more secure” than Bitcoin (BTC) under proof-of-work (PoW) because institutional players are not economically incentivized to try split the chain.

Related: Ethereum may now be more vulnerable to censorship — Blockchain analyst

Ethereum developers have also working to improve Ethereum’s censorship resistance too — with Ethereum developer Terence Tsao of Prysmatic Labs on Oct. 17 announcing that he and fellow developer Marius van der Wijden had begun building a solution to address the issue:

Ethereum co-founder Vitalik Buterin recently proposed a Partial Block Auction solution, where a block builder only has the right to decide some of the contents of the block.

Ethereum research and development organization Flashbots is also looking to soon roll out its fully decentralized and EVM-compatible block builder — Single Unifying Auctions for Value Expression (SUAVE) — in order to combat censorship issues.

On Aug. 8, the United States Treasury Department added more than 40 cryptocurrency addresses allegedly connected to controversial mixer Tornado Cash to the Specially Designated Nationals list of OFAC, effectively barring U.S. residents from using the mixing service.