Crying Crypto?

Written by Michael E Dehn

Founder and CEO of Metro Pulse a continually running enterprise since May 1980.

May 7, 2024

Judge Haller: “Mr. Gambini, that is a lucid, intelligent, well-thought-out objection.”Vinny Gambini: “Thank you, Your Honor.”Judge Haller: “Overruled.” – My Cousin Vinny
 
Crypto Is About to Have Its Day in Court
The emergence of transformational technologies like the printing press, the automobile or the internet often necessitates a re-litigation of the idea of “secondary liability” — should toolmakers be held responsible for what people choose to do with their tools?
Results have been mixed: Publishers sometimes have to filter the content they publish in case it’s misused, and car manufacturers are required to provide safety features or be liable even in cases where a driver is at fault. But internet service providers (thanks to a special dispensation from lawmakers) are never liable for what people choose to do with the internet.
Crypto hasn’t yet secured its rightful spot in that pantheon of transformational technology, but it is getting its day in court — starting next week when a panel of three judges decide the fate of the Tornado Cash developer Alexey Pertsev. 
Pertsev, who’s standing trial in the Netherlands on charges of laundering $1.2 billion of illicit funds for the likes of North Korea, hasn’t garnered nearly as much media attention as SBF or CZ did in their trials.
But he probably should have — how judges rule in the various cases against Tornado Cash will have much bigger implications for the crypto industry than the rulings involving FTX and Binance. 
If Alexey Pertsev is found guilty next week, it may mark the start of a series of attempts to bring crypto within the fold of the global anti-money laundering regime — no matter how logical the arguments that it doesn’t belong there may be.
But the stakes are even higher than that.
John Paul Koning notes that the US case against Tornado Cash will determine “who, if anyone, is liable for smart contracts and the interfaces that access smart contracts, and to what degree.”
Crypto won’t amount to much without smart contracts and I’m not sure who would write them if they’re forever liable for how the rest of us use them.
Everything that guy just said is bullshit…thank you
Ostensibly, these cases will be about highly technical questions, like what is and isn’t a money transmitter according to US law. 
Ultimately, however, they’ll be more about whether the toolmakers of crypto are responsible for how we use the tools they make.
The defense will zoom in by making a narrow argument that crypto protocols are simply code and that code can’t be held responsible for how it’s used.
This might be described as the Obi-Wan Kenobi defense: Yes, a crime has been committed, but not by the accused protocol or its developers — “these are not the systems you’re looking for.”
Will a Jedi Mind Trick work on a judge and jury?
The prosecution will encourage them to zoom out: The entity known as “Tornado Cash” isn’t just code, it’s the ecosystem around the code too (relayers, front-end website, users) — the entity known as “MetaMask” isn’t just the open-source code that only sends and receives messages to and from blockchains, it’s the ecosystem of apps built on top of the code too (MetaMask Swaps, MetaMask Staking).
In response, the defense team will try its best to keep the judge and jury zoomed in, but you’ll have to zoom out to understand what’s really at stake here.
Will crypto developers have some liability for the code they write, as publishers and car manufacturers do? 
Or will they get a near-total free pass like internet service providers were granted with Section 230?
Crypto Twitter is, of course, certain that crypto deserves a free pass — and the defense does have a good case to make: Crypto really is just code, Tornado Cash developers had no intent to launder money, the protocol never had control of anyone’s funds. 
But however lucid, intelligent and well-thought-out their arguments are, I’m not sure judges will be any more willing to listen than their colleague Judge Haller was in My Cousin Vinny.
Given the gravity of the accusation (laundering money for a rogue state), it seems more likely (to me, at least) that both judge and jury will be highly receptive to whatever logic the prosecution comes up with — even if it’s infuriatingly circular.
Crypto is a blank slate: Are tokens money? Equity? Commodity? Are protocols just software? Or are they companies?
That’s helpful for market valuations — everyone can buy cryptocurrency for whatever they see in it.
But it may prove less helpful in court where a jury of non-crypto enthusiasts seem likely to view crypto as a new financial system that needs to follow the same AML/KYC rules as the old one.
Crypto isn’t (yet) as popular as the internet, so we probably can’t expect it to be granted the same Section 230 immunity from secondary liabilities — certainly not next week.

― Byron Gilliam
 
Brought to you by:
MANTRA, the world’s leading RWA L1 blockchain, has launched its incubator aimed at fueling the next era of Web3 innovation. The MANTRA Incubator program kicks off at the prestigious Dubai World Trade Centre (DWTC) and offers 5 promising projects a seed investment of $100,000
Reasons you should apply: 
Seed funding: Each project will receive $100,000 in seed investment, personally funded by the CEO & Co-Founder, John Patrick Mullin. Global exposure: Participants experience Dubai, Hong Kong and San Francisco ecosystems, while networking with experts, developers, VCs globally. End-to-end concept to market support: Receive expert support in development, marketing, operations, and more to effectively go-to-market. 
Ready to take the leap? Apply Now to transform your ideas into a successful venture.
Apply Now
 
Democrats, Republicans clash over SEC role in House hearing — ReadThe most important trend in crypto? It’s always been memecoins — ReadSEC’s Gensler calls for more crypto disclosures for investors — ReadCourt decision could be only way US spot ether ETFs see light of day — ReadStakeKit launches market’s most comprehensive self-custodial yield API, powering Zerion’s new Earn section [Sponsored] — Read
 
The Rising Tide of Digital Asset Adoption in Asia
Join this webinar to learn from some of the top builders, investors, and market makers in crypto about what’s fueling the growth and trajectory of digital asset adoption in Asia.
Register
 
Kraken: The Crypto Native’s Powerhouse Exchange
In this episode, Jason is joined by Dave Ripley, CEO of Kraken. They discuss the challenges and opportunities of operating a major crypto exchange over the past year. Dave dives into Kraken’s focus on professional traders, their expansion into retail markets, and the importance of building a bridge between traditional finance and the crypto ecosystem. Dave also shares insights on navigating market cycles as a crypto business, the value of hiring crypto-native talent, and his thoughts on the future of centralized exchanges as more activity moves on-chain.
Watch or listen to Empire on YouTubeSpotify or Apple.
 
Thank you to our sponsor:

You May Also Like…

New realities

https://twitter.com/mediapython/status/1854396297844789558

LFG

https://twitter.com/LauraLoomer/status/1854228343043829780