There are growing worries that the recent penalties imposed by the US government on Tornado Cash could create a “slippery slope” for Web3 privacy and ultimately render the medium “meaningless.”
Shumo Chu, co-founder of the privacy protocol Manta Network, voiced concerns about the severe penalties against Tornado Cash would have a ripple impact on other Web3 protocols, including those that provide anonymity.
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 currency transfers anonymous. These protocols are comparable to Zcash (ZEC) and Monero (XMR), which hide the sender and recipient details of cryptographic transactions.
The U.S. Treasury Department essentially 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 may find themselves targeted in the same way, increasing censorship to the point where it “basically renders the whole Web3 realm worthless.”
Chu noted that the U.S. government’s decision to impose the ban was apparently made for the sake of national security because Lazarus, a North Korean hacking 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 may be placed and run anywhere in his decision to prohibit 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 had previously been detained, according to Chu, but banning a protocol is “a new paradigm” that suggests the government is trying to control mathematics 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 have the advantage, however. Since privacy developers are dispersed throughout several nations beyond the purview of the US government, he said, 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 around privacy that “regular people utilize it too,” refuting this claim.
Because the nature of the system is permissionless, he said, “there will be individuals gaming the system,” thus there should also be an effort to encourage beneficial use cases.
His opinions coincide with those of Kraken CEO Jesse Powell, who said on Bloomberg TV on August 16 that “people have a right to financial privacy” and that the penalties against Tornado were “unconstitutional.”
Chu believes that privacy protocols should have modest entry requirements so that regular people may utilize them on a daily basis. His goal, however, may be in jeopardy if privacy measures continue to be strictly enforced.
