The Stanford Blockchain Club has issued a scathing critique of the US Department of Justice’s (DOJ) prosecution of Tornado Cash developers Roman Storm and Roman Semenov, calling it an overreach of outdated federal money transmission laws.
The report is titled “Tornado Cash and the Boundaries of Money Transmission,” the club challenged the DOJ’s use of 18 U.S.C. § 1960, a statute aimed at unlicensed money-transmitting businesses, to charge the developers of Tornado Cash, a decentralized Ethereum-based protocol.
The DOJ’s 2023 indictment labeled Tornado Cash an “unlicensed money transmitting business”The ability to anonymousize cryptocurrency transactions.
Stanford Blockchain Club said that because the law was written before blockchain technology existed, it fails to take into account the decentralized protocols, such as Tornado Cash. Tornado Cash operates through smart contracts which cannot be changed, without the need for intermediaries.
The report says:
“The DOJ’s aggressive application of 18 U.S.C. § 1960 raises broader questions about the risks of stretching statutory language to cover novel technologies. This approach invites unelected officials and the judiciary to overstep their constitutional bounds, bypassing Congress’ authority to legislate.”
Report emphasized constitutional implications when using executive enforcement as a means to regulate new technologies. The report warned against such measures, which it said could undermine the democratic process by conflating legal uses of privacy-preserving technologies with illegal activity.
Stanford University has always been at the forefront of legal and technical innovation. It is also known to be a pioneer in complex regulatory problems. The blockchain club’s report continues this tradition by delving into the tension between privacy rights and regulatory oversight in the digital finance space.
Tornado Cash is a case that highlights an ongoing debate over financial privacy. It also shows the danger of bad actors misusing these new technologies.
Stanford Blockchain Club and other advocates argue that protocols such as Tornado cash fulfill legitimate privacy requirements by allowing people to protect their identity in transactions. While critics claim such tools encourage money laundering and illegal activities.
The report’s release marks a significant contribution to ongoing discussions about how the US legal system can adapt to DeFi technologies. The judiciary has yet to decide whether it will take into account such criticisms in its ongoing struggle with blockchain regulations.
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