Treasury Sanctions Open-Source Software – Bitcoin Magazine
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Early on August 8, 2022, it was announced by the US Treasury Department that Tornado Cash was added to the US OFAC (Office of Foreign Assets Control) SDN list (the list of specially designated nationals with whom US and US businesses are not allowed to do business). Tornado Cash, a non-custodial open source software project built on Ethereum, allowed users to mix their coins through the use of the Tornado Cash smart contract, obscuring the previous track of the coins (which of course are transacted over a transparent ledger).
The sanctions placed were particularly notable because they were not placed on an individual person or a specific digital wallet address, but rather the use of a smart contract protocol, which in its most basic form is just information. The precedent set by these actions is not ideal for open source development.
All-time Tornado Cash Stats – Source: Dune Analytics
All-time Tornado Cash Stats – Source: Dune Analytics
After the announcement, it could be seen that Circle, the centralized issuer of stablecoin USDC, blacklisted all sanctioned addresses from using USDC.
These actions have led many to question the security of holding centralized digital assets, even for non-criminals who simply prefer to use privacy-enhancing tools.
The total number of blacklisted USDC addresses now totals 81. Readers can track the banned address list here.
Source: Dune Analytics
On a similarly terrifying note for active bitcoin/crypto developers, the co-creator of Tornado Cash Roman Semenov got its GitHub (open source development repository) account suspended. This should worry freedom-loving bitcoin/crypto enthusiasts, given the nature of the sanctions placed on Tornado Cash – which, as noted earlier in the piece, is simply non-custodial software.
These actions also raise the question of what is the future of many tools in the so-called DeFi space, which rely on centralized stablecoins and may have centralized development bottlenecks.
As brutal as it may be, the organic and decentralized nature of bitcoin’s rise is the only reason it is still standing today. Open source software will continue to function as designed, but given the increasing pressure likely to be placed on software/wallet/protocol developers, only the strongest and most decentralized networks will not be coordinated.
Finally, it bears repeating that stablecoins themselves, while useful for escaping the short-term volatility of bitcoin/other cryptoassets and helping many around the world access US dollars, are centralized.
Zooming out further, when looking at the long-term case for bitcoin, among the strongest value propositions is the fact that it is an asset that has no counterparty risk or dilution (devaluation) risk. Yet, even more important in light of many government regulations taking shape and likely to come, Bitcoin’s true decentralized nature and censorship resistance will be equally important.
