Tornado Cash and DoorDash/Facebook Marketplace
Tornado Cash
Tornado Cash is/was a crypto smart contract service to obfuscate your paper trail on the blockchain. It is effectively a communal bank account one can send their crypto to and later withdraw from. With an adequate volume of users, it becomes challenging to follow the paper trail after withdrawing.
Tornado Cash had a bad week. First, the Office of Foreign Assets Control (OFAC) broke new ground in sanctioning Tornado Cash. Second, at least one of the developers affiliated with the program was arrested in the Netherlands. This represents a massive escalation against crypto, with predictable complaints about overreach from crypto fans. The most intriguing question: will this be a repeat of the encryption wars fought during the Clinton administration?
Sympathies
I will start with some areas where I am sympathetic to the Tornado Cash crowd
I’ve used P2P file-sharing services for illicit purposes in my youth
Law or not, I am sympathetic to some notion of not owing the government details about every transaction I make.
Government overreach does threaten new industries/technologies, and the encryption wars were bad.
Some presumably naive developer is going to go to prison over this, yet major crypto lenders have ruined lives and finances (causing suicides) still walk free
Where I lack sympathy
I am frustrated by several parts of this saga.
The very need for privacy that Tornado Cash advocates claim is the bonafide use justifying its existence is…. an own-goal. Crypto deliberately built a public record of transactions. Another way to give back financial privacy is to not use blockchains!
Along with that, a wonderful, privacy-preserving tool has already been created for transactions. Cash!
While I have sympathies about reporting every Venmo transaction to the IRS, the law is very clear in the US. There is no right to financial privacy in many cases. Examples include mandatory reporting of cash transactions over $10k (which crypto is certainly in violation of), KYC checks to open bank accounts, and all the entities required to report incomes to the IRS.
Tornado Cash isn’t a purely innocent player. All related websites have been taken down, but I believe they were taking a small cut for their services.
Crypto expects to be treated as so unique, new, and disruptive that all laws must be rebuilt in their favor from the ground up and nothing of precedent applies. This is not realistic.
What’s a reasonable analogy here
I’ve seen some seemingly horrible analogies on Twitter from this. Banning Tornado Cash is equivalent to banning the telephone or automobiles were some good ones. On further thought, I think it does need some clarification to justify why the telephone isn’t a good analogy here. Some analogies I’ve come up with include
Banning the telephone
Guns
The Silk Road - a crypto drug dealing emporium from a decade ago
And of course, the encryption wars of the 1990s
Guns are at first glance a good one for the pro-crypto crowd. They are polarizing, cause significant societal harm, and can be used for both acceptable purposes as well as outright evil. The main problem for this argument: in the US, guns are protected by the 2nd amendment + case law and are severely curtailed nearly everywhere else. Even in the US, guns are quite regulated compared to most products.
Banning the telephone is actually a more closely related argument to banning encryption than I initially expected. In short, both tools can be used for good purposes. Using them is inherently not bad. Banning them to stop other crimes just hurts the world overall. I’ll come back to this one in a second.
The Silk Road is another strong analogy. One can make the argument that having an anonymous market enables some bonafide purchases. In practice, this was primarily a cesspool of illicit wares including drugs.
The Encryption Wars (and what’s different)
The immediately rallying cry has been that we had to fight the US government to allow encryption on the internet, and we must fight them here again. (Without encryption, sharing your credit card over the internet would be insane). I am a sympathetic technologist but find this time to be very different.
The very act of obscuring financial transactions appears illegal in many use cases, not just crypto. Encryption plausibly helps cover up other crimes, hiding financial transactions is itself a crime.
Like the silk road, we can justify some “valid” use cases. The majority by dollar volume appears to be illicit activity.
There are ways to avoid the harm here that don’t exist for encryption. Without encryption, I cannot do eCommerce. Without Tornado Cash, the harm I face is to have my public transactions on a public blockchain remain publicly available?
There are in fact ways to legally achieve what Tornado Cash does!
To my last point, one example I’ve heard in the pro-Tornado Cash camp goes like this. I am a crypto employee and get paid in crypto tokens. Because my employer knows my crypto identity, they have access to my entire blockchain history. Quite a bad situation if I were buying drugs on the Silk Road during my lunch break!
The solution: Send your crypto to Coinbase. From there, you can swap it, withdraw it, stake it, or send it. Coinbase is a regulated financial entity that complies with US financial regulations. Transactions on Coinbase aren’t public, they are off the blockchain. The one rub here of course is that the US government can still follow your trail at Coinbase. I suspect many in crypto both know they could utilize Coinbase and also want to avoid that. My suspicion is that crypto wants to be above the law and off of the books for taxes.
DoorDash and Facebook Marketplace
This is just a pilot, but this is a great move in my opinion. DoorDash gets a new supply of work for drivers, as well as a 48-hour window to make the delivery. Optimizing these deliveries for non-lunch/dinner peaks will help offer a steadier supply of jobs throughout the day. Facebook certainly can use any momentum as well. More to come here.