They lost money when Tornado Cash got banned. Now Coinbase is helping them sue the government

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Key points to remember

  • Coinbase is funding a lawsuit against the US Treasury Department for its decision to sanction Tornado Cash.
  • The exchange’s CEO, Ben Armstrong, wrote in a blog post that the Treasury had “overstepped its authority” and harmed law-abiding American citizens.
  • The lawsuit is brought by six people who previously used Tornado Cash for legitimate purposes.

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Six people who used Tornado Cash for legitimate reasons had their funds frozen after the US Treasury sanctioned the protocol. They are now suing and Coinbase is funding them.

Coinbase Funds Lawsuit Against Tornado Cash Ban

Coinbase is leading the crypto community’s fight against US Treasury Tornado Cash sanctions.

The Best US Cryptocurrency Exchange published a memo written by CEO Ben Armstrong on Thursday saying it would fund a lawsuit filed by six people challenging the Treasury’s decision to blacklist Tornado Cash.

Armstrong argued that the Treasury “exceeded its authority” granted by Congress when it chose to sanction open-source software, and ignored legitimate use cases for the technology.

Cash added popular privacy protocol Tornado Cash to its sanctions list on August 8, citing its popularity among cybercriminals like Lazarus Group. He claimed he had become a vehicle for money laundering and blamed the team for failing to prevent illicit activity. The decision had broad implications for the crypto space and sparked outcry across the community. Several entities such as Circle and Infura immediately blacklisted Ethereum addresses that had interacted with the protocol, and many industry figures spoke out against the ban. Tornado Cash developer Alexey Pertsev was later arrested in Amsterdam by the Netherlands Tax Information and Investigation Service on August 10; he is still in prison although he has not received any formal charges.

In his letter, Armstrong highlighted three instances of people using Tornado Cash for legitimate purposes before the ban. One of them had used it to anonymously donate money to Ukraine (which Vitalik Buterin separately admitted after the ban). Another with a large online presence used the protocol to avoid being targeted by cybercriminals. Another used it to protect his Ethereum staking business. All three had their funds frozen due to the sanctions; they make up half of the plaintiffs in the lawsuit Coinbase is funding.

Armstrong compared the Treasury’s decision to “the permanent closing of a highway because thieves used it to flee a crime scene”, arguing that the decision punished innocent people. He added that this would have a stifling effect on innovation, as open source developers would live in fear of being held accountable for something over which they have no control.

Disclaimer: At the time of writing this article, the author of this article owned ETH and several other cryptocurrencies.

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