There are growing concerns that the recent US government sanctions against Tornado Cash become a “slippery slope” for Web3 privacy that could ultimately render the entire space “meaningless”.
Speaking to Cointelegraph, Shumo Chu, co-founder of the Manta Network privacy protocol, expressed concern that the severe sanctions against Tornado Cash could have a ripple effect on every Web3 protocol, including those that provide privacy.
Chu is one of the co-founders of Polkadot-based Manta Network, a level 1 privacy protocol that allows for private transactions in decentralized finance (DeFi).
Tornado Cash (TORN) is an Ethereum (ETH) privacy protocol that makes coin transactions anonymous. These protocols are similar to Monero (XMR) and Zcash (ZEC) which mask the sender and recipient data of cryptographic transactions.
Earlier this month, the U.S. Department of the Treasury effectively barred U.S. residents from using the protocol and placed 44 associated ETH and USD Coin (USDC) addresses on its list of specially designated citizens on the 5th. August.
Chu expressed concern that other privacy protocols like hers could end up in the same crosshairs, which would add more censorship to the point of “essentially making the entire Web3 space meaningless.”
Chu acknowledged that the US government ban was apparently done in the interest of national security as North Korean hacker group Lazarus is known to have used Tornado to launder funds it steals.
But by banning the protocol, Chu questioned regulators’ understanding of how decentralized systems based on open source code can be located and operated anywhere.
“It’s entirely possible that regulators don’t understand distributed blockchain technology and how open source code can be everywhere. [They] he may have actually thought that the Tornado Cash developers deliberately helped the North Korean hackers.
Last week, Dutch police arrested a Tornado Cash developer they suspect is involved in money laundering.
Chu added that there have been cases 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 is attempting to dominate the code and the math itself.
“They are banning the protocol instead of some people. Essentially this is a piece of code from the Ethereum blockchain.
However, Chu believes that the developers of the privacy protocol ultimately get the upper hand. He stated that because privacy developers are deployed in many jurisdictions beyond the reach of the US government, noting:
“If the US tries to implement draconian measures on privacy developers, it won’t do very well for them.”
As the developer of the privacy protocol himself, Chu notes that a narrative has been set that privacy is only for bad actors, arguing that “even normal people use it.”
Related: Tornado Cash shows that DeFi cannot escape regulation
He added that there should be a push to promote good use cases as well because, as he said, “the nature of the system is permissionless, so there will be people playing with the system.”
His views echo those of Kraken CEO Jesse Powell, who told Bloomberg TV on Aug. 16 that the sanctions against Tornado were “unconstitutional” and that “people have a right to financial privacy.”
In Chu’s eyes, the 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 further sanctions from privacy protocols.