Tornado Cash restrictions will eventually weaken the United States and strengthen crypto
The United States government’s approval of the Tornado Cash privacy protocol’s open-source code may be stunning, but it is not unexpected. Decades have passed since the United States has tightened its hold on the global financial system, purportedly to reduce bad conduct but actually to project influence overseas.
Economic penalties, like those implemented by OFAC, are formidable. It implements financial and security restrictions based on U.S. foreign policy and national security aims, according to its website. It does this to battle drug traffickers, terrorists, and “other dangers to U.S. security, foreign policy, or economic.”
Extremely frightening, especially when imposed by the issuer of the global reserve currency. But therein is the rub, as the more the United States weaponizes access to the dollar, the greater the motivation for every other nation to develop an alternative currency. Bitcoin is expected to benefit from this dynamic. To understand why we must examine the structure of money.
Fiat currencies, such as the U.S. dollar, lack a transfer mechanism. Large payments can only be done via the banking system, and in order to exist, banks need government charters. This symbiotic connection allows governments to control not just the issue of their currency but also its accessibility. Monetary censorship becomes a potent weapon for the issuer of a reserve currency, possibly as damaging as bombs and bullets.
Bitcoin is unique because it has its own payment mechanism that is impervious to censorship. Anyone may make payments to anyone other, whether or not a licenced middleman is involved. Governments may still exert control over individual exchanges, custodians, and miners, but they cannot block the protocol or its community.
Additionally, Bitcoin is apolitical in a manner that fiat currencies can never be. The United States has lately taken the extreme step of freezing the foreign currency reserves of Russia and Afghanistan, in addition to its ever-tightening sanctions regimes. Regardless of one’s view on the legality of such actions, they demonstrate that dollar reserves are only beneficial so long as their owners remain on good terms with the United States.
A detractor can claim that the licencing of Tornado Cash demonstrates that cryptocurrencies are not immune to politics. In fact, the United States has sanctioned Bitcoin and Ethereum addresses for years. What distinguishes crypto is that its decentralised protocols don’t care, at least not in the manner a bank would.