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Early on August 8, 2022, it was announced by the US Treasury that Tornado Cash has been added to the US OFAC (Office of Foreign Assets Control) SDN list (the list of specially designated nationals with whom Americans and US companies are prohibited from transacting). Tornado Cash, a non-custodial open source software project built on Ethereum, allowed users to mix their coins through the use of the smart Tornado Cash contract, obscuring the previous trail of the coins (which, of course, via a transparent ledger). are traded).
The sanctions imposed were especially notable because they were not placed on an individual person or a particular digital wallet address, but rather on the use of a smart contract protocol, which in its most basic form is just information. The precedent set by these actions is not ideal for open source software development.
Following the announcement, Circle, the centralized issuer of USDC stablecoin, could be seen blacklisting every sanctioned address for using USDC.
These actions have led many to question the security of keeping centralized digital assets, even for non-criminals who simply prefer to use privacy-enhancing tools.
The total number of USDC addresses that have been blacklisted is now at the current total of 81. Readers can follow the list of banned addresses here.
On an equally scary note for active bitcoin/crypto developers, the co-creator of Tornado Cash Roman Semenov suspended his GitHub (open source development repository) account. This should concern freedom-loving bitcoin/crypto enthusiasts given the nature of the sanctions against Tornado Cash – which, as mentioned earlier in the piece, is simply non-custody software.
These actions also raise the question of the future of many tools in the so-called DeFi space, which rely on centralized stablecoins and may have centralized development bottlenecks.
As brutal as it may be, the organic and decentralized nature of bitcoin’s rise is the sole reason it is still standing. Open source software will continue to work as designed, but given the mounting pressure likely to be placed on software/wallet/protocol developers, only the strongest and most decentralized networks will not be co-opted.
Finally, it should be reiterated that while stablecoins themselves are useful for escaping the short-term volatility of bitcoin/other crypto assets and helping many around the world access US dollars, they are centralized.
Zooming out further, looking at the long-term case for bitcoin, one of the strongest value propositions is the fact that it is an asset that has no counterparty risk or dilution (devaluation) risk. But more importantly in light of many government regulations that are taking shape and are likely to come, Bitcoin’s true decentralized properties and censorship resistance will be just as important.