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- TWISTED: TORNADO CASH
BLUF*
Roman Storm was convicted of developing Tornado Cash - which isn't illegal - on the basis of it being a "unlicensed money transmitter".
*Bottom Line Up Front
Good morning,
Roman Storm’s conviction set up a court precedent that threatens every tech company, every developer in the country. Because these prosecutors “understand blockchain” like I “understand baldness”
Read on,
Austin Campbell
Teaching Blockchain & DeFi at NYU Stern
Talking to institutions at Zero Knowledge
Photography: Lina Shteyn
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ZERO IN
"Tornado Cash is non-custodial—no one gives up control of their tokens, or their transactions—to the point not even its creator can tip the flow of funds."
THE TECH
Tornado Cash anonymizes transactions, it's a tumbler— people throw their money in, and then, different people take their money out.
Think of it like the forest in Shakespeare's Midsummer Night's Dream.
People can sneak in with their girl, and then swing out with someone else's.
Storm planted forest, not frolic.
THE USERS
LEGIT: 80%
- Afghan women hiding an emergency savings
- Democracy activists evading surveillance
- Omid Malekan (a buddy of mine and also, an actual witness at this trial) making a donation to Planned Parenthood
SUS: 20%
- North Korea funding:
- Hackers hacking : ~15%
- Other crimes ~2%
Among honest users, massive demand for privacy.
THE CHAIN OF EVENTS
Conviction sets precedent. Custody sets liability.
Roman Storm coded Tornado Cash.
Criminals (North Korean hackers) used TC
Roman convicted on "unlicensed money transmission"
If coding for all (incl. criminals) = a crime then all tech companies = fucked 🤷♂️
THE CIRCUS
→ Money transmission, requires controlling the funds
→ Tornado Cash was non-custodial, never controlled funds
→ Star witness’ money might not have touched Tornado Cash
→Court blocked defense from citing FinCEN's own guidance
→ Convicted on vague reasoning. Crime of… "vibes"?
Star witness: Pig-butchering victim whose funds went through six intermediaries before... maybe? possibly? reaching North Korea.
The incompetence: IRS used tax accounting for blockchain. FBI pie charts ≠ 100%. Witness admitted couldn't prove funds went through Tornado Cash "at all."
The absurdity: Prosecutors pivoted mid-case from registration violations to "knowledge of criminal use"—but that assumes you're already registered and custodial. Storm convicted of being negligent at something he wasn't accused of being.
Most damning: FinCEN said this wasn't money transmission. DoJ proceeded anyway. Judge blocked defense from mentioning it.
THE FUTURE
NEED A LICENSE?
Potentially Criminal:
| DoJ's Clarity:
|
THE BACKFIRE
Cypherpunks don't trust government. Never have.
Government keeps validating their paranoia: SEC under Biden. Chokepoint 2.0. Now this.
Next generation privacy protocols? No companies. No names. Nothing to subpoena.
ZERO OUT
CHAOS UNLEASHED
Convicting a coder for "unlicensed money transmission" is so vague that it should be struck down.
Given the prosecution's incompetence, every innovative company, coder could be, potentially, prosecuted for the financial actions of their users. If that's the case, innovation will flee offshore. DoJ's credibility? Gone.
What happens next:
• Privacy tools going fully dark, anonymous, and offshore
• Tool developers in legal limbo
• Tech companies of all sizes lawyering up against accusations of money transmission
• Every bank faces suits for crimes committed through chains of cash
Instead of clarity & collaboration, we push these projects underground
They wanted to stop one mixer. They just created incentive for a thousand anonymous ones.
DoJ criminalizing this tech, this founder
… can criminalize all tech, all founders
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#ZERO INSIDER#
AUSTIN
Spoke at Ethereum NYC: NextFin Summit on what all of this means for institutional compliance. Preview: Nobody knows what's legal anymore.
Photo: Lina Shteyn
DAVID
Deep in the Tornado Cash trial transcripts. Definitively, breaking down how twelve jurors got bamboozled by bad math, bad feels.
1 Read the long take on Tornado Cash, Roman Storm’s conviction on Zero Insights.
2 Missed out? Read previous issues of Zero In 004, 003, 002, 001.
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