Privacy – at least in a crypto context – has a fairly negative connotation at the moment. The U.S. Treasury Department previously moved to consider whether it should classify mixers – tools which are designed to obfuscate the trail of crypto transactions – as a "primary money laundering concern" due to their role in laundering and terrorist financing. Tornado Cash's most famous user is the Lazarus Group, a North Korean government hacking group.
This negative connotation needs to be acknowledged and discussed, said Kirkpatrick Bos, the chief legal officer at Starkware, during last week's panel. Advocates for privacy tools also need to acknowledge that some of the arguments in favor of privacy tools – purchasing legal goods or services without people knowing about them, for example – may not be persuasive when stacked up against criminal activity.
Whitehouse-Levine, the CEO of the DeFi Education Fund, said that the most concerning aspect about the Tornado Cash debate is that it's playing out in court, rather than in Congress or through a regulatory agency's rulemaking authority.
"I think [it's] a bad way to go about policy making, regardless of whether one is supportive of that policy or not," he said.
Behuniak, the staff director for a House subcommittee, said it could take "dozens of round tables" with lawmakers before they're comfortable holding a more formal hearing on an issue like the role of mixers and privacy tools in crypto.
An increasing number of lawmakers are willing to have a discussion about the benefit of mixers and what tradeoffs may be involved, she said, "but it will take time."
"But at a small scale, I think we have made some progress in expanding the number of members [of Congress] that care about this issue," she said.
On the industry side of this issue, companies need to have some certainty about what exactly regulators are thinking and what prosecutors are alleging, said Korver, a16z Crypto's head of Regulatory.
"Businesses need to have certainty whether they have obligations to do X or Y, and whether they can be held criminally responsible for it," she said. "There's a difference between getting that wrong, interpreting the guidance wrong for your business model, and having a conversation with regulators where they may be convinced – or if they aren't, that you may get a really painful fine, [versus] actually taking away somebody's liberty and charging them criminally."
In Storm's case, there's now an open question of how exactly Financial Crimes Enforcement Network (FinCEN) guidance about money transmitters applies. Attorneys have argued that the DOJ's charges against Storm would seem to go against this guidance.
This is playing out in the broader market structure debate in Congress, Behuniak said.
"Certainly absent legislation, if the SEC continues to pull in certain intermediaries, that doesn't just come with SEC obligations, that also comes with Bank Secrecy Act obligations," she said. "I think when it is determined what intermediaries should be captured, and then what exactly those requirements should be, I do think that conversation will receive more attention than it has."
Whatever legislation may happen – market structure or stablecoin legislation or something else entirely – may not solve all of the problems at issue but should still mark progress, Kirkpatrick Bos said.
Humans generally do want some form of privacy, Whitehouse-Levine said. People don't want others to read their journals, homes have blinds and so on: "That's why I think it's a fundamental human right."
