"Regulating crypto grifts" is a nice euphemism for prohibiting mutually voluntary economic interactions involving digital currency, and putting open source developers in prison:
Tornado Cash is an open source software protocol that uses smart contracts and a cryptographic method known as zero-knowledge proofs to enable users to conduct private transactions on the blockchain. Neither Roman Storm, nor any other person has the ability to stop or modify this immutable, unstoppable protocol.. In this context, Tornado Cash operates much like the Bitcoin or Ethereum network. The prosecution of Roman Storm by the Southern District of New York (SDNY) in U.S. v. Storm for his role in developing Tornado Cash will set a chilling precedent for the crypto industry by holding developers liable for how third parties use their open-source code.
The case hinges on allegations that Storm violated 18 U.S.C. § 1960 by operating an unlicensed money-transmitting business, despite Tornado Cash being a non-custodial protocol where users retain full control of their funds, challenging the applicability of Section 1960 to decentralized software.
The money laundering conspiracy charge raises concerns about whether developers can be criminally accountable for the actions of bad actors, like North Korea’s Lazarus Group, who used Tornado Cash to obscure illicit transactions. A conviction could deter innovation by discouraging developers from creating privacy-focused tools, fearing prosecution for misuse beyond their control, while an acquittal might affirm that writing open-source code is protected speech under the First Amendment.
The outcome will likely shape the legal boundaries of developer liability and the future of decentralized finance (DeFi), impacting how regulators approach immutable protocols."
"Mutually voluntary economic interactions" is a nice euphemism for scams. Yes, the people who get hoodwinked in a scam enter into these agreements voluntarily, but we as a society want to discourage scammers because we don't want to deal with the economic cost of people losing their life savings. We also don't want to incentivize sanctioned countries to build ransomware industries propped up by naive economically illiterate people buying into decentralized ponzi schemes.
Going after scams was never the issue. Actual scammers were prosecuted, and no one objected to that. In fact prosecutions against scammers have recently ramped up, and people in crypto are ecstatic that those individuals are finally facing justice. The issue was that under the previous administration more than 20 startups were being targeted without evidence of fraud, while regulators were pushing rules so overbroad that they would have made vast areas of DeFi presumptively illegal before any misconduct occurred.
As for this resort to national security justifications for the clampdown:
The countries the U.S. sanctions are sanctioned because they are authoritarian hellholes that strip their citizens of their rights in the name of national security. That is the same basic tradeoff the 'gatekeep crypto' faction is trying to impose here: sacrifice freedom for security. Indicting a software developer for money laundering because he released open source code that allows people to transact privately on a blockchain is so beyond the pale that it's hard to believe this is what the officials in charge believe in.
And this approach to risk management is objectively ruinous. It's because North Korea strips its people of freedom in the name of security that its economy is smaller than Kansas'. We shouldn't emulate that.
So now you want to classify any advocacy for crypto as an investment a scam and prohibit it. That would be a massive infringement on the First Amendment and basically a repudiation of any principle associated with a free society.
Is this kind of censorship law what you meant by a Democrat "regulating crypto"?
You completely misunderstand. If you advocate joining somebody else's ponzi scheme and aren't aware of it, you don't go to jail. If you do it knowingly, you could be prosecuted. If you run the ponzi scheme, you definitely will be prosecuted. Similarly, if you run infrastructure that circumvents sanctions, you definitely will be prosecuted. It's straightforward.
If you try to avoid prosecutions for those crimes on free speech grounds, the prosecutor will laugh at you. You might as well declare yourself a sovereign citizen.
