If a cryptocurrency like bitcoin were to become a commonly accepted medium of exchange—a global decentralized monetary system that no third party can stop or control—would the U.S. government attempt to make it illegal and prosecute the developers who contribute to its code base? Is software protected by the First Amendment? Will the government one day prosecute individuals who design 3D-printed guns and then make their plans downloadable on the internet? Last week brought cause for alarm that a federal crackdown on the decentralized, open-source software movement might be coming.
In the past, the U.S. government has pursued financial services companies like cryptocurrency exchanges, holding them criminally liable for mishandling other people's money or for facilitating international payments without following Know Your Customer and other regulations.
But what happened on August 8 was different: The U.S. Treasury Department announced that its Office of Foreign Assets Control (OFAC) was adding Tornado Cash, an Ethereum-based tool for making cryptocurrency transactions anonymous, to the U.S. sanctions list. Dutch authorities arrested a suspected developer of Tornado Cash, accusing him of facilitating the laundering of billions in stolen funds.
What's he guilty of? Writing code and making it free on the internet.
What triggered the U.S. crackdown on Tornado Cash was the allegation that North Korean hacking collective the Lazarus Group used Tornado Cash in an attempt to disguise a cryptocurrency payment worth about $455 million to North Korea's missile program.
The Treasury Department's action is reminiscent of the case against the software developer Phil Zimmerman, who developed and distributed software known as PGP in the early 1990s. PGP was the first widely accessible tool for sending messages over the internet with powerful encryption.
Zimmerman became the target of a three-year federal investigation on the grounds that his software was so powerful that making it possible for foreigners to download it online was the equivalent of distributing weapons to foreign countries without permission from the state department. The government ultimately dropped the investigation thanks in part to free speech activists who printed the entire PGP source code in a book published by MIT Press and sold it abroad to make the point that its creation was a form of writing protected by the First Amendment, just like any other book.
Zimmerman's legal battle was part of what's known as the crypto wars, which refers to the ongoing battle to keep powerful cryptography legal. The sanctioning of Tornado Cash is the latest chapter in that struggle. To better understand its implications, I reached out to attorney Jerry Brito, who's the executive director of Coin Center, a nonprofit focused on policy issues and regulations facing bitcoin and other cryptocurrencies.
"What's been sanctioned here is not a person. There's a sanction on a tool. And so the sanction really is on millions of Americans who otherwise might want to use that tool for completely lawful purposes," says Brito.
Watch the full video above.
Produced by Zach Weissmueller; edited by Danielle Thompson. graphics by Isaac Reese, Jim Epstein, and Thompson.
Photo credits: Yichuan Cao/Sipa USA/Newscom; joan slatkin; CNP/AdMedia/Newscom; Liu Jie / Xinhua News Agency/Newscom