The Hard Truths and Worrying Consequences of the Tornado Cash Verdict

There are hard truths in life, and then there are the things we want to believe. The sentencing of Tornado Cash developer Alexey Pertsev to 64 months in prison in the Netherlands shows how these two things are often at odds. On both sides of the debate over the sanctioned crypto mixer, there are bad arguments and even worse conclusions.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates. This is an excerpt from The Node newsletter, a daily roundup of the most pivotal crypto news on CoinDesk and beyond. You can subscribe to get the full newsletter here.

First, it was always painfully obvious that the now sanctioned crypto mixer Tornado Cash was designed to shield people’s identities, thereby facilitating crime. If it wasn’t, then it wouldn’t be very useful for protecting people like peace activists or political dissidents who need privacy – like Vitalik Buterin sending funds to Ukraine activists with a pitstop through Tornado Cash.

Moreover, it was always the case that jostling together funds from a variety of sources, licit and illicit, was likely to be construed as a form of money laundering.

Sure, Tornado Cash’s developers never took custody of the funds and therefore never directly, personally facilitated money laundering, but they did build an unstoppable smart contract without any of the types of controls that money transmitters are usually subject to like collecting and verifying identifying information from users to aid investigations.

That was essentially the argument of the Dutch prosecutors who tried Pertsev: that the 31-year-old Russian national living in the Netherlands, and his colleagues Roman Storm and Roman Semenov (who face similar charges in the U.S.), made a series of choices about how to design, upkeep and market their mixer.

“The decision of the Dutch courts to condemn and impose a heavy prison sentence on Alexey Pertsev seems unjust and disproportionate, given the novelty of the technology and the numerous legitimate uses of Tornado Cash,” crypto lawyer Fatemeh Fannizadeh told CoinDesk. “The decentralized, disintermediated, and censorship-resistant nature of blockchain does not align perfectly with traditional patterns of regulated behavior and should therefore be treated with a more nuanced legal approach.”

Indeed, part of Pertsev’s defense was acknowledging that, even if money laundering was happening, because the protocol operated like a robot on a blockchain and users always maintained “exclusive control” over their funds, if anyone is to blame it is the users themselves. This is to say nothing that Tornado’s devs did maintain a frontend, through which 90+% of users went through.

This has somewhat dangerous implications. As money blogger J.P. Koning points out, if people could simply absolve themselves of the responsibility of building and deploying a machine they know could and likely would be used by criminals, then “anyone who wants to facilitate illegal activities would have a strong incentive to copy Tornado Cash.”

“In a world in which the Tornado Cash defense prevails and payments companies adopt it as a techno-legal shield against money laundering charges,” attempts to stymie crime become less effective, “and not because we decided to soften them via a democratic process, but because financial institutions found sneaky ways to get around the rules,” he continued.

Still, at the same time, there are many worrying aspects of the case against Pertsev. Perhaps most significantly was the judge’s ruling from the bench that there was “no legitimate use” of Tornado Cash – as if privacy itself is a crime. Even though there were many legitimate uses of anonymizing one’s blockchain history, according to authorities every dollar that passed through was suspect.

Then there is the stultifying conclusion that, apparently, developers are somehow responsible for how people use their programs. This is not just a fundamental misunderstanding of how immutable smart contract protocols work, but there is seemingly no end to the liability this could cause for anyone who builds anything, and not just software.

Are gun manufacturers held liable for shootings? Is the U.S. government responsible if physical cash is used for crime? The double standard in Pertsev’s case is troubling. As the DeFi Education Fund put it in an amicus brief: “With no limiting principle in place, nearly all developers who create open-source software would be exposed to criminal liability for activity outside of their control years or decades later.”

Does this mean governments will actually begin to pursue cases against disadvantaged developers, perhaps working in politically unfavorable industries? That remains to be seen. But whether or not you agree with the interpretation of the law, the hard truth here is that mixers aren’t just about privacy and human rights – and to the extent that they facilitate crime, authorities will want to shut them down.

And if they can’t, someone is going to be held responsible.