There are growing concerns that the recent United States government sanctions against Tornado Cash could become a “slippery slope” for Web3 privacy, which could eventually make the whole space “crazy”.
Speaking to Cointelegraph, Shumo Chu, co-founder of privacy protocol Manta Network, expressed concern that the strict penalties against Tornado Cash could have a ripple effect on all Web3 protocols, including those that provide privacy. .
Chu is one of the co-founders of Polkadot-based Manta Network, a layer-1 privacy protocol that enables private transactions in decentralized finance (DeFi).
Tornado Cash (TORN) is an Ethereum (ETH) privacy protocol that anonymizes coin transactions. These protocols are similar to Monero (XMR) and Zcash (ZEC) which hide sender and receiver data from crypto transactions.
Earlier this month, the US Treasury Department effectively barred US residents from using the protocol and placed 44 ETH and USD Coin (USDC) addresses associated with it on the Specially Designated Nationals list on August 5.
Chu expressed concern that other privacy protocols like his would find themselves in the same crosshairs, which would add more censorship to the point of “essentially rendering the entire Web3 space meaningless.”
Chu acknowledged that the US government’s ban was made ostensibly in the interest of national security, as the North Korean hacker group Lazarus is known to use Tornado to launder funds it steals.
But by banning the protocol, Chu challenged regulators’ understanding of how decentralized systems based on open-source code can be located and operated anywhere.
“It’s entirely possible that regulators just don’t understand distributed blockchain technology and how open source code can be anywhere. [They] may have thought that the Tornado Cash developers deliberately helped the North Korean hackers.
Last week, Dutch police arrested a Tornado Cash developer they suspect of being involved in money laundering.
Chu added that there have been instances in the past where crypto developers have been arrested, such as Ethereum developer Virgil Griffiths, but that banning a protocol is “a new paradigm” signaling that the government tries to rule over the code and the math itself.
“They ban the protocol instead of certain people. It is basically a piece of code from the Ethereum blockchain.
However, Chu believes privacy protocol developers have the upper hand in the end. He said that since privacy developers are spread across many jurisdictions beyond the reach of the US government, noting:
“If the United States tries to implement draconian measures on privacy developers, it will not go very well for them.”
As a privacy protocol developer himself, Chu notes that there is a narrative that privacy is only for bad actors, arguing that “normal people use it too.”
Related: Tornado Cash shows that DeFi cannot escape regulation
He added that there should also be an effort to promote good use cases because, as he said, “the nature of the system is permissionless, so there will be people messing with the system.” .
His views echo those of Kraken CEO Jesse Powell, who told Bloomberg TV on Aug. 16 that the Tornado sanctions were “unconstitutional” and that “people have a right to financial privacy.”
In Chu’s eyes, barriers to entry into privacy protocols should be low so that normal people can use them every day. However, his ideal could be threatened by new sanctions of confidentiality protocols.