In particular, Web3 technologies that provide privacy on the blockchain may be impacted by the U.S. ban on Tornado Cash.
There are growing worries that the recent sanctions imposed by the US government against Tornado Cash could create a “slippery slope” for Web3 privacy and ultimately render the medium “meaningless.”
The co-founder of the privacy protocol Manta Network, Shumo Chu, voiced concern that the severe penalties imposed on Tornado Cash would have a negative ripple impact on all Web3 protocols, including those that provide privacy.
Shumo Chu is one of the co-founders of the layer-1 privacy protocol Manta Network, which is built on Polkadot and allows for private transactions in decentralized finance (DeFi).
A privacy system for Ethereum (ETH) called Tornado Cash (TORN) makes coin transfers anonymous. These protocols are comparable to Zcash (ZEC) and Monero (XMR), which hide the sender and receiver details of cryptographic transactions.
The U.S. Treasury Department effectively forbade US citizens from using the protocol earlier this month and added 44 ETH and USD Coin (USDC) addresses linked to it on August 5 to the list of Specially Designated Nationals.
Chu expressed concern that other privacy protocols similar to his could find themselves targeted in the same way, increasing censorship to the point where it “basically renders the entire Web3 realm worthless.”
Chu noted that the U.S. government’s decision to impose the ban was ostensibly made in the name of national security because Lazarus, a North Korean hacker gang, has a history of using Tornado to launder the money it has stolen.
Chu, however, questioned authorities’ comprehension of how decentralized systems based on open-source code can be located and operated anywhere in his decision to ban the protocol.
“It’s quite possible regulators just don’t understand distributed blockchain technology and how open source code can be anywhere. [They] may have actually thought Tornado Cash developers deliberately helped North Korean hackers.”
A Tornado Cash developer was detained by Dutch authorities last week on suspicion of participating in money laundering.
The Ethereum engineer Virgil Griffiths was one of the cryptography developers who was detained in the past, according to Chu, but banning a protocol is “a new paradigm” that suggests the government is trying to control math and coding in general.
“They are banning the protocol instead of some people. Essentially this is a piece of code from the Ethereum blockchain.”
Chu thinks that privacy protocol creators eventually hold the advantage though. Since privacy developers are dispersed across numerous nations outside the purview of the US government, he claimed, noting:
“If the US tries to implement draconian measures over privacy devs, it won’t go very well for them.”
Chu, a privacy protocol developer, observes that there is a mythos surrounding privacy that “regular people utilize it too,” refuting this claim.
Because the nature of the system is permissionless, he continued, “there will be individuals gaming the system,” thus there should also be an effort to promote beneficial use cases.
His opinions coincide with those of Kraken CEO Jesse Powell, who stated on Bloomberg TV on August 16 that “people have a right to financial privacy” and that the sanctions against Tornado were “unconstitutional.”
Chu believes that privacy protocols should have modest entry requirements so that regular people can utilize them on a daily basis. His goal, though, might be in jeopardy if privacy measures continue to be strictly enforced.
