Coinbase Leads and Funds Lawsuit Against Tornado Cash Sanctions

Coinbase is leading the fight of the crypto community against U.S. sanctions on Tornado Cash application.

The leading U.S. cryptocurrency exchange announced on Thursday a note written by CEO Brian Armstrong, stating that it will fund a lawsuit against six individuals challenging the Treasury Department’s decision to blacklist Tornado Cash.

Armstrong argued that the Treasury Department 'overstepped its authority' granted by Congress when it decided to sanction open-source software, and that it ignored technological software that has legitimate use cases. 

The Treasury Department added the popular privacy protocol Tornado Cash to its sanctions list on August 8, citing its popularity among cybercriminals such as the Lazarus Group. It claimed that the application had become a means for money laundering and blamed the team for failing to prevent illegal activities. The decision had wide implications and faced backlash throughout the crypto community.

Several entities such as Circle and Infura immediately blacklisted Ethereum addresses that interacted with the protocol, and many prominent figures in the industry spoke out against the bans. Tornado Cash developer Alexey Pertsev was then arrested in Amsterdam by the Dutch Fiscal Information and Investigation Service on August 10. He remains in jail despite not having received formal charges.

In his letter, Armstrong highlighted three cases of individuals who used Tornado Cash for legitimate purposes before the ban. One used it for anonymous donations to Ukraine (something that Vitalik Buterin acknowledged after the ban). Another with a significant online presence used the protocol to avoid being targeted by cybercriminals. The third used it to protect his Ethereum staking business. All three had their funds frozen due to the sanctions. They  make up half of the plaintiffs in the lawsuit funded by Coinbase.

Armstrong compared the Treasury Department’s decision to permanently closing a highway because robbers used it to escape from a crime scene, arguing that innocent people are being punished by the decision. He added that this will have a detrimental effect on innovation, as open-source developers will live in fear of being held responsible for something over which they have almost no control.