The Chopping Block: Tornado Cash on Trial, Crypto Privacy in Crisis, and Robert’s LQR House Takeover - Ep. 880
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Companies
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Key Quotes
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Topics
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Insights
🎯 Summary
Podcast Summary: The Chopping Block: Tornado Cash on Trial, Crypto Privacy in Crisis, and Robert’s LQR House Takeover - Ep. 880
This episode of The Chopping Block centers almost entirely on the high-stakes criminal trial of Roman Storm, co-creator of the privacy protocol Tornado Cash, and the broader implications for software development, privacy rights, and regulatory overreach in the crypto industry. The discussion is deeply personal for the hosts, as Dragonfly (the firm of two hosts) was the seed investor in Tornado Cash.
1. Focus Area
The primary focus is Crypto Regulation and Privacy Rights, specifically analyzing the Tornado Cash criminal trial (Roman Storm) regarding charges of conspiracy to launder money and unlicensed money transmission. Secondary themes include the nature of decentralized, immutable software, the role of venture capital in regulated spaces, and the DOJ’s conduct during the proceedings.
2. Key Technical Insights
- Immutability as Defense: The defense hinges on the fact that Tornado Cash smart contracts are immutable and non-custodial. The argument is that once deployed, the code operates autonomously, meaning the original developers (like Storm) do not control the funds or the ongoing transactions, similar to how Apple cannot access iMessage content.
- The Nature of Privacy Tools: The prosecution’s argument that Tornado Cash should function like a centralized exchange (Coinbase) by implementing KYC/AML was heavily criticized. Experts like Matthew Green countered that this fundamentally misunderstands the purpose of privacy-preserving technology, which is to offer censorship-resistant financial privacy akin to tools like Signal or WhatsApp.
- Tornado Cash Baked into Ethereum: A notable point is that the Beacon Chain staking contract was deployed using an address funded by Tornado Cash, suggesting the protocol is now intrinsically linked to the fabric of Ethereum, regardless of the trial’s outcome.
3. Market/Investment Angle
- Chilling Effect on Innovation: The prosecution of a developer for building an immutable protocol sets a dangerous precedent, potentially stifling future entrepreneurs from building privacy-preserving tools due to fear of criminal liability.
- Investor Liability Precedent: The DOJ’s brief contemplation of bringing criminal charges against Dragonfly (an early-stage investor) for simply investing in a protocol accused of wrongdoing is unprecedented and alarming for the VC community, suggesting a massive expansion of liability beyond established norms (e.g., Theranos, FTX).
- Privacy as a Core Crypto Principle: The discussion reinforces that financial privacy is crucial for censorship-resistant wealth, a foundational tenet of crypto that is now under direct legal threat.
4. Notable Companies/People
- Roman Storm: Co-creator of Tornado Cash, currently on trial facing serious criminal charges. He is viewed by the community as a champion for developer rights and privacy.
- Dragonfly (and Hosts): The firm was the seed investor in Tornado Cash. They were briefly and publicly threatened with criminal charges by the DOJ during the trial, leading to a weekend firestorm before the DOJ retracted the statement.
- OFAC (Office of Foreign Assets Control): Mentioned for their unprecedented 2022 sanctions against the Tornado Cash smart contracts themselves, which were later overturned by the Fifth Circuit as unconstitutional overreach.
- Coin Center, EFF, Paradigm: Groups that have provided support and filed Amicus Briefs on behalf of Roman Storm.
5. Regulatory/Policy Discussion
- Adjudication via Criminal Case: A central argument is that criminal prosecution is the wrong venue to adjudicate broad policy questions (i.e., whether national security outweighs individual privacy). If the government wants to restrict privacy tools, it should pass clear laws, not use criminal cases against developers of non-custodial software.
- DOJ Misconduct: The DOJ’s unprecedented public statement in open court suggesting they were contemplating charges against Dragonfly principals, only to retract it days later, is highlighted as a major breach of protocol and an example of the government weaponizing public pressure.
- Blanche Memo Context: The discussion references a past DOJ memo suggesting resources should not be spent prosecuting “victimless crimes” like non-compliance in crypto, contrasting sharply with the aggressive prosecution of the Tornado Cash case.
6. Future Implications
The outcome of the Roman Storm trial is predicted to be a watershed moment determining the future viability of privacy-preserving software development in the US. If the prosecution succeeds based on the current arguments, the industry may see a severe chilling effect, pushing innovation offshore or halting development entirely in areas requiring anonymity. The case will likely face years of appeals, regardless of the initial verdict.
7. Target Audience
Crypto Developers, Legal Professionals in Tech, Venture Capitalists, and Policy Advocates. Professionals interested in the intersection of software engineering, constitutional rights, and regulatory enforcement within decentralized finance will find this most valuable.
🏢 Companies Mentioned
Yth Zilla
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crypto projects
OpenZK
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crypto projects
Samurai
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defi
Lazarus
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institution
WhatsApp
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Web3/Privacy Tool (Non-Crypto Specific)
Signal
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Web3/Privacy Tool (Non-Crypto Specific)
Lager House
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unknown
War Dogs
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unknown
Matt Levine
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unknown
My I
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unknown
Yth Zilla
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unknown
But I
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unknown
Coinbase Prime
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unknown
Adam Back
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unknown
Satoshi Nakamoto
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unknown
💬 Key Insights
"Fundamentally, nobody had any plausible basis to know with any remote accuracy how many shares existed of this company. And so, you know, a lot happened in those intervening days."
"At this point, no one knows how many shares are. I don't know. There's zero disclosures about it."
"they just had their broker just like clicking the sell button as fast as they could click the sell button. And when they're doing this, it's actually creating new shares. You know, it's not like there's a limit in the brochures. You can invent shares. You make new shares all the time."
"shelf offering? Yeah, shelf offering, great question. Is when a company says we're going to sell equity to the public by literally dumping shares on the exchange. It would be like if a crypto company had its tokens and we're literally just like doing market orders on you this one."
"If you want to experiment in building these new innovative and somewhat subversive technologies like privacy and fighting for the rights of the individual over the government is always subversive. To Tom's point, that was what the original Cypherpunks fought for when they created Bitcoin."
"Everybody has been singing the same tune. Which is that they do not want to see this campaign of intimidation against software engineers and innovators continue in the US. People know that this creates a chilling effect that it pushes people overseas, that it tells them America is not the place for you."
📊 Topics
#artificialintelligence
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#startup
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#investment
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🧠 Key Takeaways
not be criminal
not be using DOJ resources to go after these
go after people who are, you know, the real bad guys quote unquote, right? So like the sort of the cartels and, you know, these, these sort of these groups that are actively hacking people or actively engaging in harm