Coinbase's chief legal officer, Paul Grewal, has criticized the U.S. Treasury for its handling of the case involving the Ethereum mixer protocol Tornado Cash, stating that the Treasury is "bending old laws past their breaking point." Tornado Cash, a cryptocurrency mixer, obscures transaction details, providing users with privacy on public blockchains. However, regulators hold developers and token holders responsible for any illicit fund transfers using the protocol.
In response, the U.S. Treasury's Office of Foreign Asset Control sanctioned Tornado Cash in 2022, leading to charges against its founders for money laundering and sanctions violations. Tornado Cash, backed by Coinbase, sued the government in retaliation.
Grewal highlighted a flaw in the government's argument, stating that code is not property and therefore cannot be regulated by the Treasury. He emphasized that immutable, open-source software code poses a challenge for the Treasury, which is authorized to regulate only property with foreign national interests.
Coinbase's stance underscores the broader implications for the crypto industry, arguing against the Treasury's authority to sanction a mixer protocol. CEO Brian Armstrong likened sanctioning open-source software to shutting down a highway due to criminals using it, emphasizing the negative impact on privacy and security for innocent users.
Coinbase's criticism reflects concerns over regulatory overreach and the need to protect privacy and security in the cryptocurrency ecosystem amidst legal battles with government agencies.