Tornado Cash co-founder conviction will weigh on privacy solutions for public blockchains.\n<\/p>\n
This week\u2019s verdict against Tornado Cash co-founder Roman Storm signals that crypto developers may face increased legal risks when working on one of the areas the industry arguably needs most: privacy.<\/p>\n
Roman Storm, the co-founder of crypto privacy tool Tornado Cash, was found guilty on Wednesday<\/a> of one criminal charge in a case that could reshape how the law treats developers in decentralized finance (DeFi).<\/p>\n The trial centered on allegations that Storm knowingly enabled money laundering through Tornado Cash<\/a>, despite publicly promoting it as a privacy tool. The New York jury ultimately convicted him of conspiracy to operate an unlicensed money-transmitting business and was unable to reach a verdict on two other charges: violating U.S. sanctions and engaging in money laundering. <\/p>\n \u201cIf contributing to open-source code, especially something that protects privacy, becomes a crime, that\u2019s a slippery slope,\u201d said Shady El Damaty, the co-founder and CEO of human.tech by Holonym. \u201cWhat we should be encouraging is responsible innovation, systems that preserve privacy and decentralization but still support transparency and accountability.\u201d <\/p>\n The outcome could force privacy-focused crypto projects to add more rules, like checking users\u2019 identities and tracking transactions. These changes could ultimately discourage developers from building new tools, changes that run counter to DeFi\u2019s core idea of creating open, permissionless systems. <\/p>\n \u201cRoman Storm built a privacy tool, not a criminal empire. The real issue is that privacy itself is being framed as a threat, and that\u2019s chilling for anyone who\u2019s ever worked on decentralized systems,\u201d said Kadan Stadelmann, CTO of Komodo Platform. \u201cIf this verdict stands, we\u2019re basically telling devs to stop innovating or lawyer up.\u201d<\/p>\n Public blockchains keep a public record of transactions, which means that users\u2019 financial history is accessible and visible. That\u2019s a problem for individuals who don\u2019t want to expose their transactions, and also for institutions. Top executives from firms inclusing BlackRock<\/a> and EY<\/a> have said the lack of privacy in public blockchains has been a key roadblock for adoption. <\/p>\n The charge was brought by the U.S. government, which claimed that Storm and his co-founder Roman Semenov \u2013 who was sanctioned by the U.S. in August 2022 and remains at large \u2013 knew the platform was being used to conceal illicit funds. <\/p>\n Prosecutors allege that over $1 billion was laundered through Tornado Cash, including hundreds of millions linked to Lazarus Group, a North Korean hacking organization.<\/p>\n It\u2019s important to note that although Storm was convicted, his legal team reportedly<\/a> plans to appeal, meaning that the verdict is not final yet.<\/p>\n But it\u2019s not just privacy-focused projects that would be under threat. Following the case made by the prosecution, developers of any non-custodial permissionless system would now have to worry about whether their protocol is being used for illicit actions. <\/p>\n Legal experts and industry advocates say Storm\u2019s conviction could set a dangerous precedent<\/a> in which developers can be held liable for how their software is used \u2013 even if they don\u2019t profit from or run the service directly. <\/p>\n \u201cLongstanding guidance at the federal level from FinCEN has been that money transmission requires \u2018custody or control.\u2019 But the theory pursued by the DOJ (and accepted by the court) in this case disregards that standard,\u201d John McCarthy, the General Counsel at Morpho, told The Defiant. \u201cIt raises, but does not resolve, critical questions about how non-custodial infrastructure can be built legally.\u201d <\/p>\nMoney Laundering Allegations<\/h2>\n
Threat to DeFi<\/h2>\n
Ross Ulbricht Comparison<\/h2>\n