FT Cryptofinance: Cryptography, Penalties, and the First Amendment

FT Cryptofinance: Cryptography, Penalties, and the First Amendment

Welcome to this week’s edition of FT’s Cryptofinance newsletter. Today, we look to crypto-mixing services and the rights enshrined in the US Constitution.

The Holy First Amendment may not have been the area the US Treasury had in mind when it sanctioned crypto-mixing service Tornado Cash this summer.

In August, the administration had enough of the Tornado, claiming it was used to launder more than $7 billion and to be a favorite conduit for North Korean-backed hackers to evade sanctions. Mixers like Tornado block the funnel of transfers that are usually publicly available on the digital ledgers that underlie cryptocurrencies.

The results were very difficult. All transactions that pass through the Tornado Cash Virtual Office are blocked if they involve US users or are made anywhere in or across the country. Everyone got the message: If you’re an American, don’t go near it.

Crypto hardliners were predictably less impressed, claiming familiar grievances such as government overreach and the crushing of individuals’ financial privacy rights.

They are now taking their complaints a step further. This week, the Coin Center, a Washington-based non-profit research and advocacy group focused on crypto, submitted a file lawsuit against the Treasury and its Office of Foreign Assets Control (Ofac), claiming it had no authority to sanction Tornado Cash.

She was joined by crypto investor David Hoffman, software developer Patrick O’Sullivan, and “John Doe,” who is described in the recording as a human rights activist who donates cryptocurrency to Ukraine.

Will the Coin Center get anywhere with the prosecution of one of the most powerful financial crime agencies in the world? And if not, why bother?

The lawsuit didn’t really address the substance of the Treasury’s allegations: that the Tornado was being used as a conduit for money laundering.

Instead, the Coin Center case revolves around its view that they are protected by the First Amendment, which protects the rights of groups (and individuals within them) to exercise free speech. Prosecutors claim that criminalizing Tornado Cash infringes the constitutional rights of users who “need it to protect their private association.” John Doe fears that Russian agents will learn about his pro-Ukrainian activism and harm him and his family.

This offensive line may not be enough. “I am completely skeptical of the First Amendment claim . . . I do not believe there is precedent to support the right to make anonymous donations entirely in a given currency,” Peter Fox, partner at Scoolidge, Peters, Russotti & Fox, told me via email.

Admittedly, Coin Center does not help itself. It asserts that it is not a criminal and does not deal with criminals or terrorists. However, he also says: “It is impossible to know what assets are being sent to a Coin Center account when they come from a Tornado Cash address.” The Coin Center declined to comment on how these statements coexisted.

Fox said private associations can be maintained without using Tornado Cash, or any other crypto-mixing service. “Why don’t you cut them a check? This is very special.”

The Coin Center’s strongest position may be the claim that the Treasury and Ofac have overreached because Tornado Cash has also been used for payments between ordinary Americans who just want to pass cash between each other, privately. Fox said this point could be a problem for the government.

Perhaps the battle is not over the present but the future. “Whether the Coin Center is successful or not, it will only strengthen our blockchain laws and policies to increase public discourse around open source software tools in general, including tools like Tornado Cash,” said Theresa Jody Gillen, partner at US legal firm BakerHostetler.

But perhaps, as America’s Founding Fathers knew, some facts are self-evident.

As John Reed Stark, the former head of the Securities and Exchange Commission’s Internet Enforcement Office, told me this week: “The industry is constantly screaming for regulatory clarity, certainty, and detail, but whenever they get it, they file a lawsuit saying it’s not what they are like. “

What do you think of the Coin Center v. Treasury case? Send me an email to scott.chipolina@ft.com.

Weekly highlights

  • As the saying goes: when it rains it pours, and the land of Solana is very wet. I asked last week where the network will go after a bunch of recent failures, and Solana-based DeFi Mango Markets platform was hacked this week for $100 million. Joining the ever-growing list of DeFi hackers, the Mango Markets team clearer That “Oracle price reports worked as they should” – a detail that would surely inspire a lot of confidence in the alleged future of finance.

  • France made crypto headlines again this week afterwards Welcoming the Crypto.com exchange platform to its shores. The platform’s registration as a digital asset service provider under the Autorité des Marchés Financiers (AMF) follows Binance’s registration in the European Union member country months earlier.

  • dead continue Pushing the limits of technology. If you are planning to transfer your life to Meta Horizon Worlds, you can look forward to it. . . *check notes*. . . It has legs. Twitter user observed pointed out who – which maddena popular American football video game, achieved the same feat in 1994, which I feel is a departure from the latest Meta innovation.

  • Scrutiny of the obvious role of cryptocurrencies in easing economic sanctions will not disappear. Exchange platform Bittrex agreed this week to pay $29 million to settle enforcement cases with US authorities over “obvious violations” of sanctions against countries such as Iran, Cuba and Syria. Read about it here.

  • Binance has been accused by the co-owner of a UK subsidiary of providing a “grossly inaccurate” annual report to a British entity linked to the cryptocurrency exchange. The accusation follows a public spat between Binance and the Financial Conduct Authority last year. Read more here.

Top of the week: the rope

The undisclosed trade paper that underpins the world’s largest stablecoin has long attracted speculation. no more.

“Tether is proud to announce that it has completely phased out commercial paper from our reserves. This is a testament to our commitment to backing our tokens with the safest liquidity reserves in the market.”

Isn’t it about the 4.4 percent interest offered on short-term US Treasuries, then? Let’s hope this speeds up the long-awaited vetting process as well.

Data Mining: Coinbase’s Problems Continue

Whether it’s job cuts, internal conflict, or… Quarrels with regulators2022 was a tough year for Coinbase.

Recent data published by analytics platform CryptoCompare shows that momentum has not shifted yet as it prepares to announce third-quarter earnings on November 3. The exchange’s monthly spot trading volume fell 17 percent to $48 billion, compared to $120 billion at the beginning of the year. Spot trading volume is now at its lowest level since December 2020.

Additional data from CryptoCompare shows that monthly spot trading volumes for Binance, FTX, and OKX increased over the same period.

Probably documentary Coinbase and its co-founder Brian Armstrong are going to change people’s minds. mind you, Atlantic Ocean Was not a fan.

#Cryptofinance #Cryptography #Penalties #Amendment

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