The ban on Tornado Cash might be disastrous for other privacy systems, according to a Manta co-founder

By: Dickson Arinze

August 17, 2022 8:40 AM

The U.S. ban on Tornado Cash may particularly affect Web3 technologies that offer privacy on the blockchain.

A rising number of people are concerned that the recent US government ban on Tornado Cash could lead to a "slippery slope" for Web3 privacy and undoubtedly make the medium "meaningless."

Shumo Chu, co-founder of the privacy protocol Manta Network, expressed worry in an interview with Cointelegraph that the heavy sanctions imposed on Tornado Cash would have a detrimental knock-on effect on all Web3 protocols, including those that enable anonymity.

Chu is one of the co-founders of Manta Network, a layer-1 privacy protocol that supports private transactions in decentralized finance (DeFi) and is based on Polkadot.

Decentralized finance is made possible by Polkadot and enables for private transactions (DeFi).

Coin transactions are anonymous thanks to the Tornado Cash (TORN) privacy technology for Ethereum (ETH). Similar to Zcash (ZEC) and Monero (XMR), these protocols conceal the sender and receiver information of cryptographic transactions.

Earlier this month, the U.S. Treasury Department officially forbade use of the protocol by US residents and on August 5 put 44 ETH and USD Coin (USDC) addresses associated to it to the list of Clearly Marked Nationals.

Chu expressed concern that additional privacy protocols comparable to his could come under the same kind of control, rendering the entire Web3 realm "essentially meaningless."

Chu pointed out that Lazarus, a North Korean cyber gang, has a history of utilizing Tornado to launder the money it has stolen, therefore the ban's imposition was ostensibly imposed in the name of national security.

In its decision to forbid the protocol, Chu, however, questioned the ability of the government to comprehend how decentralized systems based on open-source code can be located and run anywhere.

It's possible that regulators simply don't understand distributed blockchain technology or how open source code may be found anywhere. They might have actually assumed that the developers of Tornado Cash had actively helped North Korean hackers.

Dutch authorities apprehended a Tornado Cash developer last week on suspicion of taking part in money laundering.

According to Chu, one of the jailed cryptography developers in the past was the Ethereum engineer Virgil Griffiths, but banning a protocol is "a new paradigm" that shows the government is attempting to regulate maths and coding in general.

Rather than specific people, the protocol is forbidden. In essence, this is some code that was extracted from the Ethereum blockchain.

Chu believes that those that developed privacy protocols will ultimately be at an advantage. He asserted that the US government has little control on privacy developers because they are distributed throughout many different countries, noting:

If the US tries to enforce strict laws on privacy developers, it won't go well.

Chu, a privacy protocol developer, points out that there is a misconception about privacy that "ordinary people use it too," debunking this assertion.

He said that because of the permissionless nature of the system, "there will be people gaming the system," thus there should also be an effort to promote advantageous use cases.

Chu thinks that entry requirements for privacy protocols should be reasonable.