Citadel Dispatch

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EPISODE: 72

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TOPICS: sanctions on ethereum privacy tool Tornado Cash, lessons learned, moving forward
 
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[00:00:33] Unknown:

Happy Bitcoin Wednesday, freaks. It's your boy Odell here for another Citadel dispatch.   I know it's been a few weeks.   Apologize for that. I have been on the road.   I did bring my podcasting equipment with me,   but   the opportunity never presented itself to have a nice in person conversation.   I hope you freaks have been enjoying   the Bitcoin review episodes I've been doing with Justin Moon and MBK that are on the feed.   It seems like we've gotten a lot of good feedback on those.   So, fortunately, I did get a bunch of those out,   over these last few weeks, but it's good to be back with you all for another proper dispatch.  

So dispatch   is a live interactive show   focused on Bitcoin and Freedom Tech.   It is supported by you guys. No ads, no sponsors,   100%   audience funded,   and I really appreciate you all for continuing to support the show.   The easiest way to support the show   is to subscribe on your favorite podcast app by searching searching Cielo Dispatch,   or we have a new YouTube channel. You shouldn't use YouTube. You shouldn't use Google products, but   a lot of freaks have told me that they want it on YouTube.   So I put it on YouTube.   If you use YouTube, consider subscribing there. That does help.  

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And, finally,   a lot of freaks have been enjoying podcasting 2.0. You can support the show via various podcasting 2.0 apps,   such as Fountain Podcasts,   Breeze Wallet,   and Podverse dot f m. So if you're doing that, thank you again for doing that.   Supporting the show in podcasting 2.0 is as simple as searching Ciel dispatch in your favorite podcasting 2.0 app, pressing the subscribe button, choosing how many sats per minute you think dispatch is worth it to you. And then as you listen, it automatically stream sats from your lightning wallet to my lightning wallet.   It's pretty cool. I get to see the flow   as that is happening.  

You can also do something called a boostogram.   Boostograms   allow you to attach a message to a single payment of sats.   And as is tradition, I read   the top 4 boosts from the previous episode. We have Kobe with 10,000 sats saying great show. Keep it technical freaks. Fiat price is a distraction.   We have letter 6173   with 7,700   177 SATs saying, you have saved lives with such great content. Thank you for all the years.   We have Proboost   at 5,000 SATs saying lorem ipsum satoshi dim sum.   I think you got a kick out of that one.   Then we have John Bea with 4,444   sats. This was a fantastic episode, super in-depth and entertaining as hell. Payments is a really complex challenge, and the more educated and informed the end user is, the better. I think the best way to educate users is through the wallet interface,   like how Sparrow Wallet displays the visualization of inputs and outputs. This is what separates Bitcoin only wallets from other multi coin wallets. It just need to find the right balance of informing the user without overwhelming them with too much info.  

Reminder that if you do a boost or stream SaaS through podcasting 2.0,   your SaaS also go directly to open source projects   that are awesome that are being worked on by teams,   based on donations. You got raspi Raspberry Blitz, Robosats,   Seed Signer, Sparrow Wallet, and Zeus.   So if you support dispatch, you support those shows at the same time, which is pretty fucking cool.   Last but not least, before we get started, sorry for the slightly longer intro than usual.   A little bit rusty here.   Shout out to all the freaks who continue to join our live chats while we broadcast. So if you subscribe on YouTube or Twitch, you'll get notified   when we go live. If you open up those streams,   your live comments show up on sale dispatch.  

They're not censored. There's probably some kind of algorithm that stops some of your comments from coming through, but I don't block any comments from coming through.   And it's a key aspect of this conversation.   So you're able to be a part of the conversation. We're able to answer your questions. We're able to react to your comments.   If you don't want to use a tech platform,   we have a matrix chat available,   which has great conversation. We have over a 1000 Bitcorners in there right now. Great conversation   on a daily basis even when the show isn't live. You can find a link to that at sidildispatch.com   by clicking the sidildot chat button.  

Okay, guys. Anyway,   with all that said, we're gonna keep today's rip very tight.   Kinda happened last minute, so I wanna thank our guests for joining us.   A lot of things have gone on this last week, particularly in the privacy world.   We had the the the major news was we had this Ethereum privacy tool called Tornado Cash,   was sanctioned by the US Treasury,   and   all Americans or anyone who lives in a country that honors American sanctions   are forbidden from using it as a result.   Their GitHub account   was pulled.   The lead devs,   big, GitHub accounts were pulled.  

The website appears to have been seized. The website front end appears to be seized,   and   a a bunch of other things have gone down, which we will get into. So, anyway, we have 2 return guests here. We have Tony. What's going on, Tony?   Sup, guys? Happy to be here. And we have Seth for privacy here. How's it going, Seth?  

[00:06:54] Unknown:

Hey, Matt. Thanks for having me back on, man. Lots of lots of interesting stuff to talk about today.  

[00:06:58] Unknown:

Thank you, guys, for join I literally messaged them both this morning.   We have a I have a massive   Bitcoin meetup, in a few hours.   And this morning, I woke up, and I was like, I would like to talk to Tony and Seth   about all this news. So once again, huge shout out to them for joining us. I think before we get started,   it's it's important to say that first and foremost,   nobody in this conversation is advocating for people   to evade sanctions.   You should follow all applicable laws in your country.   Okay. So where do you guys wanna start after that?  

[00:07:46] Unknown:

No. That's that's kind of it. That's the show, guys.   Follow.  

[00:07:50] Unknown:

Follow, subscribe.   See you later.  

[00:07:55] Unknown:

I don't I don't know. I mean, at at least maybe just a little bit of a summary for maybe the guy in the coma that just woke up.   You know, what's interesting, Tornado Cash,   this sort of, like, privacy   tool on Ethereum,   a smart contract   that basically allows people to have some privacy, to achieve some privacy,   sort of like,   and I don't know how it technically operates, to be honest, but you can kind of, you know, say it's some sort of   of,   you know,   I'm gonna say CoinJoin, but, you know, it's not actually coins that's going on here.   Ethereum operates on know, the privacy tool. I I know. But, you know, the whole purpose of it is to achieve privacy. Right? And there's nothing wrong with trying to achieve privacy, especially,   you know, there's a lot of legitimate uses of it. You know? There's a lot of legal uses of it. Like, people have the right to achieve privacy.  

So that that said,   the the United States made the argument   that,   North Korea is using this tool   on Ethereum,   and it got sanctioned. And so,   yeah, I I,   I'm   conflicted on this for, like, many reasons.   Like, you know, how for 1, how centralized   is Ethereum anyways? So, like, is this just akin to saying it's in the, you know, a centralized mixer?   And and Ben Carmen's in the chat saying it is a centralized mixer but hosted on Ethereum rather  

[00:09:29] Unknown:

than a server. And that's where I'm kind of gonna agree with on on him. If I'm There's 2 there's 2 terms here. Look. If we're gonna provide context, we need to provide clear context, I think.   And I I I I think all 3 of us are not, you know, necessarily that familiar with,   you know, how the e the the Ethereum ecosystem works. I think I'm I'm I'm pretty familiar with Tornado Cash if you want me to give a quick intro as to what it is and how it works. Yeah. That would be great. But before we do that, there's there's 2 key terms that I think we're gonna keep coming to,   and that's centralized and custodial.  

Centralized   is, obviously, you have a centralized entity that is involved in the process.   Custodial, on the other hand,   is also, obviously,   is a subset of centralized or central yeah. It's a subset of centralized,   but   it takes it a step further, and that centralized entity also has custody of your funds and can take your money. My basic understanding of Tornado Cash is Tornado Cash   is not a custodial mixer,   but it is centralized.   And with that,   Seth, you can either disagree with that premise or just give us better context in general.  

[00:10:46] Unknown:

Yeah. I think I think you're really close.   I know that there's a lot of Ethereum hate, obviously. There are lots of good reasons for that,   but I I certainly would argue that it's a decentralized, non custodial, privacy tool. It's not a mixer, so people can think of it more like Zcash on Ethereum. It uses essentially the same technology, something called zk SNARKS, to hide amounts   and to hide the input in any given transaction so that within   within Tornado Cash, in each denomination in the old smart contract, so, like, point one ETH,   any output   could have been any of the inputs in the pool,   of all time.  

And in the new smart contracts that they have, it's also not fixed denominations, so any output could be any input at any point in time. So you gain strong input hiding and amount hiding within that smart contract.   And it's decentralized in the sense that it runs on Ethereum. The creators of the smart contract have no control over it. They cannot edit it. They cannot roll it back.   They can't stop it. And I think, we can get into that more, but I think that's a big reason why   sanctions was the route taken here instead of legal action against the actual creators of the project of Tornado Cash.   But I would argue that it's a decentralized non custodial privacy tool, because Tornado Cash also obviously never gains custody of funds. Essentially, when you use Tornado Cash,   you send an Ethereum, you get a a private note, which is essentially a private key   to that specific,   input, and then you can use that private note to claim   that input at any point in the future.  

So the general flow is you deposit funds, you wait for some amount of time, and you withdraw funds to a different address.   There are a lot of problems with that, and most people using Tornado Cash have shot themselves in the foot and ruined their privacy by going back to an old address or linking   their old account to the new account together at some point in the future. There's lots of ways that can go wrong, but I think it is a at least in the way that Ethereum is theoretically decentralized,   This is theoretically decentralized.   And and I think it's it may be a good   showing that it is decentralized, that the US government has not shut down the smart contract, and it's not The smart contract's still going. Mhmm.  



[00:12:59] Unknown:

The the front end is down,   and the GitHub centralized GitHub repo's been   pulled, but the smart contract's still going.  

[00:13:08] Unknown:

Yep. And the the other latest censorship is that,   the the main API   providers within Ethereum, since most people and most services don't run their own Ethereum nodes,   like Infura I can't remember the name of the other one, but Infura specifically. Alchemy. Yeah. Both of them are preventing the use of their API with the Tornado Cash smart contract.   So even though the smart contract is there, it's getting harder and harder for people to actually access it unless they run their own Ethereum node, which, as we all know, almost no one runs an Ethereum node.  

[00:13:40] Unknown:

So   so the   right. Right. So so that means the the actual end users have to run a node? I was a little bit confused on on that aspect of,   apparently, there's, like, some kind of nuance there that if you   it's, like, the specific   tornado cache Infura nodes are down,   but not  

[00:14:04] Unknown:

if you use a separate Infura node or something. So if you're using a wallet that uses the Infura API set or if you're trying to use Infura directly, you can't interact with the Tornado controller. Okay. So that's what I thought. Mhmm.  

[00:14:18] Unknown:

Okay. So, I mean, that just goes we there's a lot of an an it's a lot to unpack here, but that obviously goes back to why it's so important that users can easily and cheaply run their and use their own nodes   rather than relying on large,   companies that are hosting them on corporate cloud servers.   Just to go back   I'm trying to figure out the best way to do this. Just to go back,   you made the claim that it's at least theoretically decentralized.   I think everyone agrees it's noncustodial.   The there's no, like, admin keys or anything that you know of that can just shut down the whole thing?  

[00:15:01] Unknown:

Not that I know of. From my understanding, the way Tornado Cash was deployed, once it was deployed, they have no control over the smart contracts. Okay. So they did it the right way. Yeah. A lot of a lot of smart contracts on Ethereum always have, like, this upgrade path where, like, the admins can kinda get in there and change the code, but,   sounds like that's not the case this time.  

[00:15:20] Unknown:

Okay. So   and   then we have the okay. So so the reason why the custodial thing is important let's start with that. The reason the reason the custodial thing is important is because there's very established precedent,   that the US government specifically believes that custodial mixers are,   criminal in nature.   We've had multiple custodial mixers get shut down.   We've had Helix.   The   guy the main guy got arrested over it.   He's in jail right now.  

[00:15:56] Unknown:

He's actually not in jail. He works for the feds now. Nope. Yeah. He works for the feds now.  

[00:16:01] Unknown:

Wow. Mhmm. What was his name again? Larry Dean Harmon. Harmon. Larry Dean Harmon. Yeah. Oh, is it Larry Harmon?  

[00:16:09] Unknown:

Yeah. It's I think his full name is Larry Dean Harmon. Some people refer to him as Dean. Some as Larry. But, yeah, he, he took a plea deal   and is now a CIA for the FBI.  

[00:16:20] Unknown:

Wow.   Okay. Did not know that. And he also ran some custodial lightning wallet that got rug pulled in that case, but that's besides the point.   I guess blender.i0,   did not get shut down, but they got sanctioned. Right?  

[00:16:36] Unknown:

Mhmm.  

[00:16:39] Unknown:

But, anyway, these custodial mixers   have historically there's precedent been set that they're treated as criminal entities.   I don't know of any cases where users   specifically   have been   had cases brought against them, but the operators have.   And so   since   those since those situations have happened, and and it's important to keep in mind that in Bitcoin land to and we're gonna keep bringing this back to Bitcoin   and maybe Monero a little bit.   In Bitcoin land, we've had custodial mixers since almost the very beginning. Like, the first iteration of Silk Road had a custodial mixer built into it.   That was the main way people used to achieve better privacy on Bitcoin.  

And not only was it a regulatory point of failure, but, obviously,   you have to trust,   the entity running the custodial mixer   with,   not only your funds, you have to hope they don't rug pull you, but you also have to trust them with your privacy.   And as a result, what you saw a lot of times with people using custodial mixers is that they would basically daisy chain them and go between multiple different custodial mixers.   So since then,   in Bitcoin land, we've had   2 main centralized coin join protocols,   get developed.   1 is Whirlpool, and then the other one is Wasabi.  

And both of those,   they're   the actual protocols are very different, but the the key similarities, they both rely on this blinded centralized coordinator, where the coordinator   is not able to link the inputs and the outputs, so they're not able to   directly compromise your privacy,   and they don't actually take custody of your funds.   They just construct a collaborative Bitcoin transaction between the participants, and they're there to to help you construct that transaction's   communication   method.   Now when I said they can't necessarily take away your privacy,   both those systems have civil   resistant mechanisms.  

The civil idea is if you flood   in a non anonymity set with a bunch of your inputs   to see you know, try and break down,   you know, with a decent amount of probability process of elimination what the other UTXOs are.   And both of these setups in a low fee Bitcoin environment, which is what we've been seeing as you can see on screen if you're watching,   Wiz's mempool is showing,   one sapper byte confirms in the next block,   there's no civil resistance   from the coordinator. So, presumably, if the coordinator wanted to be an active attacker, they   could,   compromise your privacy. But by by design, the way it's set up is if they're not actively attacking you, if they're not a malicious entity,   they can't link your inputs and outputs, and they can't steal your funds.  

Now this is the first case that I've   that I'm aware of where a non custodial   privacy tool   that is essentially just code running on Ethereum   has been sanctioned,   which is a big step. That's a big,   leap that we've seen from the US Treasury. Right?  

[00:19:54] Unknown:

Yeah. I think we've we've seen this continued crackdown on privacy tools on cryptocurrency,   but like you mentioned,   the easy ones to go after legally have been the custodial centralized mixers, because it's it's a person or central entity running this thing. They custody all funds, so it's very easy to hit them with money laundering,   charges. And there there are a lot of easy ways to bring   legal action against them. And I think you that's why we've seen things like Helix not be sanctioned,   because they could just go after the operator, force them to comply,   and bring all of these charges against them. But the the big change here is, like, they've gone from things like Helix, which are completely centralized and custodial.  

They sanctioned blender.io,   which I think they sanctioned that rather than other legal action because it's most likely run out of Russia, so they don't have the legal jurisdiction to shut it down,   but, obviously, want to prevent people from using it.   And then now, like you mentioned, the the big change is this this kind of brings a lot of other privacy tools into the sites of the US government,   because   the thought process, I think, for many people was,   if the thing is open source, if the thing is decentralized, if the thing is noncustodial,   there's not a legal case to be brought against the tool because you're not actively facilitating anything. You have no control over who specifically is using your tool.  

So in theory, you couldn't be,   like, under the gun for KYC AML laws or money laundering or Banking Secrecy Act or all of these things that are normally brought against,   centralized mixers and happened in the past.   Obviously, with Tornado Cash, this is a, at least, theoretically, decentralized,   noncustodial   privacy tool that that that Tornado Cash people have no ability to   not only see who's using it, but to prevent anyone from using it, to control who uses it, or to to shut it down. So there's a there's a big difference here. And not only, like you mentioned at the beginning of the show, did they   sanction the specific tool and the usage of that tool, but they went after the code and everyone who wrote the code as well, which is another massive leap because it's not just the people who are operating something and making money off of the service, but it's also just open source contributors who contributed on GitHub or getting their accounts   shut down or suspended. Like you said, all GitHub repos are shut down. So there's a there's a   a massive set of precedents   being set here   that could have broad implications for   other privacy tools on Bitcoin   and other cryptocurrencies. I mean, even something like a samurai wallet, in theory, could fall under sanctions if Tornado Cash could.  

Obviously,   they have a lot of things in place where they're they think that they're prepared for that, and they have a kind of a plan. But,   it it, I think, should bring into question this idea of app level privacy and how tenable that will be in severe   adversarial   environments like we we obviously are entering now. Like, I I think since the Freedom Convoy,   this is the biggest piece of news in the cryptocurrency privacy space, and should be shaking everybody up and forcing a lot of really good conversations right now. And I think, thankfully, it does seem to be doing that.  

[00:23:01] Unknown:

Yeah. I'd just like to add on here that, like, you know, I think you guys have brought it up, but, like, the idea is that, like, sanctions are basically the last thing   that they can sort of do to quote, unquote,   not stop it, but limit it, in any way. So, you know, instead of thinking of it as, like, they're going after   the creators, they're really just trying to make it illegal to interact   with,   a a person or a service or a website or or things in that nature. Like, as an American citizen,   they're just deeming it illegal to interact with it as an American business or anyone following United States sanction laws. They're making that illegal to assist in any way. So, I mean, GitHub has,   you know, shut down,   GitHub accounts and code that has been created by,   Iranian ir Iranian coders before. Like, it's not a new thing of GitHub shutting down the accounts, and it's not necessarily,   the, you know, it's not necessarily saying that anyone did anything wrong, that those accounts have,   done any criminal or legal behavior. Right? Like, I don't like, they can't really go after   or they don't seem to have gone after the creators for doing anything illegal.  

It's just like they're trying to make it now illegal to interact   with it, and that's about, it seems as though, that's about as far as they can go. But it's a big sweeping measure. Like, anyone in the United States interacting with it, they're now facing up to, like, 30 years of jail time. Right?   So it's a it's a very big serious thing for anyone   that has been using it or has used it or continues to use it,   but it's it's kind of an interesting dilemma. I think you guys are right. Like, this is basically all that they can do,   under the assumption that Ethereum is sufficiently   decentralized enough.  



[00:24:54] Unknown:

I mean, I will   I will echo the sentiment   of Seth that, you know, I think this should be   making people think and have conversations, and   it seems   it gets at least from a   I've long held that, like, my optimistic case,   for people caring about privacy is that people get burned. And as they get burned,   they learn by essentially touching the stove. And it does kinda seem like this is what's happening in this situation,   maybe even more so than the freedom convoy. In the freedom convoy, I was a little bit,   disappointed how quickly everyone just forgot about any kind of lessons that could be learned, from that government action.   I will say that one of the most   dirty aspects of using   sanctions as a tool here,   is it does have a massive chilling effect. Most people will not wanna talk about these kind of things publicly   As some of these listen as some of our listeners probably have already noticed,   the 3 of us are well, Seth actually speaks quite eloquently and carefully, but me and Tony are pretty   frank about how we speak, and and on this topic, you know, we are clearly watching our words.  

There was,   that one Ethereum developer,   Virgil,   who got charged with sanctions violations   for giving a speech. Now he did go to North Korea to give the speech.   He went he literally went to a sanctioned country and   gave them a speech about how to circumvent sanctions.   So, I mean, that's not, like, the most crazy case, but it's a perfect example,   that people that do talk about these things,   do put themselves in enhanced legal risk, which is a very dirty element of the whole thing. I would also say   that I strongly believe that code is speech   and is protected by the first amendment,   and I believe that financial privacy   is protected by the 4th amendment.  

I do not think that we can rely on our   legal protections. Otherwise, none of this would be necessary in the first place, but it is an important aspect to keep in mind here.   Seth mentioned   Samura Wallet.   Samurai wallet did release something on Telegram   talking about how they're thinking about this.   There's a lot to unpack here.   We We are gonna try and keep this episode as tight as possible.   He goes, there isn't a starting point address to sanction Whirlpool.   The addresses all belong to users, so they would need to go after either software distribution or end users.   Our domain, they have others.  

See how Pirate Bay handled their domain seizures over the last decades.   GitHub,   they have a self hosted GitLab on their own hardware and a very strong privacy preserving jurisdiction that has a history of telling the US to get stuffed when they attempt to see servers,   and they have backups and can deploy to a new server   almost instantly.   He goes on to say he   $7,000,000,000   worth, so they were significantly larger than any of these Bitcoin privacy tools.   But a UTXO model is far superior than an account model.   3rd, code is protected speech. This is a long established precedent, thanks to the original cyberpunks who fought this battle decades ago.  

It should be evident to anyone watching that we have been thinking about these possibilities for a long time. It is why we migrated away from GitHub years ago. It's why we rely on as few third party services as possible. It is why we set up in jurisdictions that have a history of protecting privacy.   We do not bury our head in the sand hoping everything works out. We take proactive steps as early as possible.   I'll end with a promise. If some aspect of our software were to be sanctioned by the US, we would fight that tooth and nail. We have a legal team on retainer ready to go. We'd rather put that money into development, but if it needs to be done,   it needs to be done. So that was Samura wallet,   statement on this, situation.  

Any thoughts there?   There's a lot to unpack there.  

[00:29:23] Unknown:

Yeah. I,   you know, I I definitely   you know, it is a little bit of a different situation,   which is a good thing. I'm I'm pretty confident in   the abilities to, like, kinda mitigate,   you know, some of these denials, like like them hosting their own GitLab and and having failover safes and and stuff like that. And I will say, like, you know, at at at the end of the day, there is a   point of contact that there is,   to have with some of the Whirlpool servers.   I'm sure they have failovers and redundancy and things like that, but there so there is, though,   you know, a potential   target point. Even if it's distributed, even if they're able to, like, you know, as as had have as much redundancy as possible, there is still   opportunities to go after them.  

And I think, like, you know, when we talk about,   you know, code is is free speech,   Ideally,   there isn't a centralized coordinator at all. Ideally, there's you know, if if you look where to look at, like Bitcoin itself, like, you know, there's not this centralized coordinator, you know, orchestrating transactions. You know? There's,   there's a sufficient distribution   across the entire Bitcoin network.   So, like, you know,   having sanctions on Bitcoin versus having sanctions on a,   you know,   an Ethereum,   you know, privacy, smart contract, or a centralized coordinator. They're all kind of different stories, but,   you know, I will say, though, you know, they are actively thinking about it because there is actually this point of attack that,   unfortunately, the United States could go after if they if they show chose to.  



[00:31:13] Unknown:

Yeah. And I I think Matt hit the nail on the head mentioning the the kind of the psychological and chilling effect that sanctions can have.   And I think   if you think about what sanctions actually are and what they do, I I think that's really the the broadest effect is that it it scares people off from doing a specific thing. And in this case, it's using   Tornado Cash or writing code for Tornado Cash, which   both of those are a big deal. But I think the the psychological impact is the the biggest power that the government sees that they have in a sanction,   in a sanctioned action. And so that's one of the reasons why they're using this when they they don't seem to be able to technologically shut it down.  

And, apparently, they weren't able to trace funds well enough through it, to to feel comfortable in tracking down people after usage.   So I I mean, it kinda proves that it works. Right? Yeah. Yeah. I mean, if if something gets sanctioned, it proves that they can't take it down and that they obviously can't   manage it well enough for their own needs. And in this case,   I mean, there's so much to get into in this, but I think one of the really interesting things is that   they   in their official press release, the US Treasury claims that all of the lifetime volume of tornado cash counts as laundering,   which is fascinating,   and that's a very big step from the previous ways that they approach these types of tools.  

Even though they specifically   call out only 7% of the volume over the lifetime as being from hacks that they've specifically tracked as going into Tornado Cash.   So, again, I think it's interesting that you Anyone who's ever used Tornado Cash  

[00:32:51] Unknown:

was complicit.  

[00:32:52] Unknown:

Is that what you're saying? That that is what they say. So to quote them specifically, they say,   today, US department sanctioned virtual currency mixer, Tornado Cash, which has been used to launder more than $7,000,000,000   worth of virtual currency,   And the lifetime volume of Tornado Cash is 7,600,000,000.   So, obviously, they're referring to the lifetime volume of Tornado Cash and saying that   all transactions that have gone through Tornado Cash are in their eyes money laundering,   which is a very big deal because,   again, it's theoretically decentralized and noncustodial.  

And it's not like a mixer where you have direct connections to other inputs   even if the output is,   obfuscated.   So there there is a lot to unpack there, but I think it's it's very telling that they claim that all of it is laundering,   but they can only trace a very small portion of it to elicit activity and yet still sanction not only the tool itself, but   developers,   GitHub accounts, and all of the GitHub repos, and the website, and documentation sites, and all the other these other things.  

[00:33:54] Unknown:

Yeah. I mean, there's another element here   that   you know,   obviously, on this show, we talk about Bitcoin privacy,   a lot.   With Ethereum,   there is   a lot of differences between Ethereum and Bitcoin.   One of the main differences   is this idea of an account model versus a UTXO model.   So in Bitcoin,   you're told not to reuse addresses.   Every time you receive   Bitcoin, you use a new address.   All those UTXOs,   all those unspent transactions are sitting in your wallet. They almost look like bills in your wallet.   Or you can imagine them as bills in your wallet of different denominations of Bitcoin. And when you make a spend, you're basically taking out a certain amount of those bills, and you're making the spend. You're combining them on the input side, and then they result in   either one output or 2 outputs usually.  

If you overpay, it's 2 outputs because they pay the change back. If you send it all, then it's one output. There's obviously other transaction types.   With Ethereum,   from a Bitcoiner point of view, the way you can imagine it is that everyone is using a single reused address. They call them accounts.   And as a result, those accounts have   your entire financial history is attached to those accounts on the Ethereum blockchain, completely viewable to everybody.   That includes all the different tokens and everything else you do in Ethereum is all attached to that one account.   Now those accounts   are often   obviously linked to your identity, and sometimes they're linked to your identity. Well, the majority of the time, they're linked to your identity because   most people that are coming into this ecosystem come in through KYC regulated institutions, so they're coming in, linking it to their identity.  

But, also, a lot of people on Ethereum have voluntarily   linked it to their identity.   So we have addresses   accounts.   They call them accounts.   We have accounts on Ethereum   of known individuals,   with their full financial   transaction history, including all tokens and all contracts they've interacted with,   immediately viewable to anybody with access to the chain. Or if you don't have access to the chain, you use one of these third parties, like, other scan or something, and you can see it.   So what what is that implication here? Well, the implication here is, first of all, when they made the sanction,   they sanctioned the   the contracts account.  

So anyone who interacts with that account is connected to that.   This is a single account. This is what Samura when Samura mentioned in their statement,   they mentioned   the UTXO model versus the account model. This is what they were referring to.   But the second thing   is because a lot of these accounts are viewable   or   the people know who they're attached to, like, people know where Vitalik's account is. People know where Jimmy Fallon's account is. People know where Puma's account is.   People know where Brian Armstrong's account is.   There are either 1 or a few people   that have been   sending,   tornado withdrawals,   to their accounts.  

And my understanding of Ethereum   is they do not have coin control or anything.   So,   obviously, with these systems, you can't stop someone from sending you something, but they also can't choose not to spend something.   So there's all these extra complications   that seem to be becoming very apparent here. And I would say,   1st and foremost, that these types of actions,   should not be unexpected by people.   Like,   governments   around the world pushing back against financial privacy is a tale as old as time.   Unfortunately, on both Ethereum and Bitcoin, but even more so on Ethereum,   a lot of early decisions were made   that make using them privately   more difficult, but particularly on Ethereum, it's really, really bad.  

So I'm curious what happens here with this dusting stuff,   how that is treated.   But also on the flip side,   anyone who has interacted with Tornado Cash   with a doxed account   before   the sanctions happened is technically wrapped up in this as well,   and regulated services, presumably,   at the very least, will blacklist them from interacting with   their services,   or we can expect that.   And I don't know if if we even I would assume that the US treasury isn't gonna go after those individuals because we've never seen them go after users before, but they could. Right?  

[00:38:55] Unknown:

And I don't think we need to expect them to do it logically. I mean, if they wanted to go after some of the people who've used Tornado Cash and not all of them, that   they they can do that even though   it's it's dumb that it's not an evenly distributed judgment or no judgment. I I wouldn't be surprised if they do go after some people, but not all of the people and especially the people being tested.   Yeah. I mean, the the issues with privacy and Ethereum are really   damning in a case like this as opposed to something like if we contrast Tornado Cash and Samura Wallet,   for instance,   And there's a lot of differences, obviously. But looking at them from, like, how would someone even detect that you're using that specific tool in Ethereum,   like you mentioned, that that contract address or the contract addresses, because there are multiple for Tornado Cash, have been sanctioned and are obviously being surveilled now, and probably have been surveilled for a while. And so if you enter Tornado Cash, it's clearly visible on chain that you went from your account to the Tornado Cash smart contract. Yes. The funds then gained privacy after that, but the fact that you've chosen to use Tornado Cash is very transparent on chain.  

And, also, as you mentioned, everyone reuses address   addresses in Ethereum because you generally just have an account and you use that one.   Another way that people link their identity or other NIMs to their Ethereum activity is using ENS. They're using those dot ETH addresses.   And so they'll tie that to their Ethereum accounts, which again could be tied back to using Tornado Cash past, present, or future.   And there's a lot of issues with actually trying to be able to to do something like that in an adversarial environment. Again, not advocating someone break these sanction laws, but just saying in this kind of situation,   it's very easy to detect when someone tries to use Tornado Cash. Whereas with Samurai Wallet, even though you could see that they are entering a coin join, if you well, no. If you knew their specific address, like the the user's address   or a UTXO, you could see that they enter Whirlpool.  

But like you mentioned from the Samurai Wallet Telegram message,   there's no static address or something associated with samurai wallet where they can tell that that's specifically a samurai wallet usage, and they can't just monitor samurai wallet themselves   and see what transactions are flowing through Whirlpool and the the other post mix spending tools.   So there are a lot of benefits to not only the UTXO model, but also the the Tor First model of samurai wallet.   There's a there's a lot there.   I I guess the main weakness with something like a samurai wallet in a a situation like this would be   if they were forced to comply,   they could turn over information associated with people who have not used their own dojo. They could turn over those x pubs, and some information about transactions could be given up.  

But, again, that's very, very unlikely. That's just one of the downsides there as opposed to within Tornado Cash. Even the creators of Tornado Cash can't tell you   what transactions are linkable between the entry and exit.   But there are there are a lot of differences, and Ethereum makes it much more difficult to gain privacy. Because even if you choose to gain privacy, it's it's   extremely transparent that you have chosen to gain privacy on Ethereum.  

[00:42:01] Unknown:

Yeah. I mean, one thing we talk about specifically when we talk about, like, VPNs and stuff   is this idea that it's impossible to prove if people are keeping logs.   And it's kind of a similar   situation,   with light client users on Samura Wallet.   Obviously, Samura admits that they hold those XPUBs   for those users.   They don't have them connected to an ID specifically.   Obviously, it's connected to Bitcoin chain information,   but they have and and it goes through Tor, so they don't have an IP address.   But, presumably,   I have to imagine I would hope at least the very least that they have precautions in place   to make sure those servers are secure and to make sure that they   are wiped in adversarial environments,   if they're compromised in some way.  

But, yeah, that that's probably, like, the the biggest concern from any kind of action, whether that's an official government action or a malicious actor trying to compromise their servers and get that x pub information.   And that goes for   Samurais obviously gets more   flack about that than other projects in the space   because they're a privacy focused project, but that goes for pretty much all Bitcoin   like clients.   If you're not using your own node, you're using someone else's node, and you're trusting   who's ever running that node with your privacy   and, the validation of the Bitcoin rules, which is why it's so important to use your own node.  

That's one of like, there's so many things to unpack here. The fact that it's so difficult to use your own node with Ethereum,   you know, makes this even more dangerous   of a situation for them, I feel like.   I mean, it just clearly does. It's not even a feeling.  

[00:43:55] Unknown:

Yeah. It's both the aspect of,   you know, making it hard to to run a note, but then also, you know, the combination of the address thing. Right? So people getting tested attacked right now.   You know, if they're really not   still participating   or have any association with actively   it's like there's no consent involved in that. You just received from,  

[00:44:17] Unknown:

a tornado address, and you didn't do anything wrong. So, like, they'll But maybe Jimmy Fallon manually withdrew from tornado himself. We don't know if someone else sent it to you. Right. So they're probably  

[00:44:27] Unknown:

you know, they have I guess, the United States has every,   can they they they can at least question these people. I don't think they're,   you know, I think worst case scenario for someone that was just innocently, you   know, dusted attacked in this way, they may be questioned.   They may, you know, go through hassle,   etcetera, etcetera. But,   you know, I think worst case scenario, they just end up having to, like, send as much as they received back, you know, to the United States because there isn't this UTXO model that you can easily just,   like, avoid,   avoid the these these,   transactions. So I think I don't think they're like, someone just innocently getting   swept up in this is gonna, like, get in trouble, but, it's probably gonna be a pain in the ass,   to deal with it because they're like and then who what about the people that don't even know? Like, you know, even in Bitcoin, we we can detect a a dusting attack,   a lot easier. I think Samurai even helps highlight when there's a potential dusting attack to your wallet.  

So, like, shout out to them. But, like, you know, someone could just be naively receiving,   you know, these funds and not have any idea where it came from. They don't keep up with every address that's sanctioned,   you know, in in Ethereum   or or other places. So, like, yeah, there's there's probably gonna be a lot of, like,   knocking on the door for, you know, some of these people, and they have no idea what's going on.  

[00:45:59] Unknown:

And I think Seth made an interesting point on Twitter,   which is,   Seth, you make a lot of interesting points on Twitter. I just lost the I was gonna say, I made a I made a lot of points about Oh, okay. So,   tornado   for the Bitcoiners in the house,   which is most of you,   presumably,   Tornado did something similar to what Wasabi did, and they proactively   decided to incorporate chain analysis, chain surveillance,   to prevent blacklisted   accounts from interacting with their contract.   And they were still sanctioned regardless. So I think there's a good lesson here   in,   you know, proactive doesn't   really protect you.  



[00:46:50] Unknown:

Just hurts everybody. Turn tornado was actively trying   to prevent,   blacklisted addresses?  

[00:46:58] Unknown:

Yeah.   About, I don't know, maybe 7 months ago now. Maybe maybe longer.   They   they received pressure in some way that was unclear,   and they implemented a,   Chainalysis   OFAC sanctions   block tool, essentially, into their their front end for Tornado Cash. So not into the smart contract because, again, they have no ability to edit that. But into their front end, which is the way the vast majority of people use Tornado Cash, they implemented this   free analysis   tool, yeah, into the the website.   And   all what that did was blocked OFAC sanctioned entities from using Tornado Cash.   So OFAC has sanctioned Ethereum addresses before. It's not new. And Bitcoin addresses. Yeah. And a couple of Monero addresses and some payment IDs for some reason.  

But they so they they blocked these specific OFAC sanctioned entities from using Tornado Cash, which in theory is all that the US Treasury wanted because the US Treasury is is claiming that the reason for this is to prevent North Korean hackers who are stealing funds within the Ethereum ecosystem   from being able to   gain financial privacy through Tornado Cash.   And   so in theory, that blocking of the front end from effect sanction   entities would have been good enough. But,   obviously, I mean, we've seen this over and over again,   giving in, like, preemptively   doing things to try to appease just it it doesn't work.  

And it's it's odd because you think that the government would be happy with people doing that and want to incentivize people to preemptively   comply.   But it seems like, yet again, they just preemptively complied and and gained nothing from it, and now are still under the the sanction hammer and in a much harsher way than I think anyone expected,  

[00:48:44] Unknown:

much less them. That's that's really interesting because, like, you know, if you read through the US Treasury's,   official,   post that they made on this,   I mean, you could read the entire article. There's a there's a lot of really interesting language that they use here. But, specifically to what Seth just said here, like, it that even surprised me. I didn't I didn't, again, know much about Tornado Cash, but the treasury is specifically saying,   and I quote, like, they repeatedly failed to impose effective controls.   So it's it's not even that they didn't even try. It's like, well, they they did try. Right? But they're still making the claim that,   they, like, failed to do something that they were asked to do,   even though it sounds like they even they tried. So, like, maybe there's even,   I don't know, like, warrant to getting this,   repealed in some way,   or, you know, something along the facts. But I think that's that's really interesting that they they at least tried to do something.  



[00:49:43] Unknown:

And, I mean, even in Ethereum,   like, a static   blacklist   is very hard to be an effective   tool to prevent   a specific entity from using Tornado Cash. Like,   that's one of the interesting things is that I I don't really know how they were supposed to effectively block it because they can't change something in the smart contract, and they can implement the Sofaq sanctions list.   But I doubt that   the US Treasury was keeping the list up to date enough with every single account that these North Korean hackers were using. So it's it it's really it seems like a catch 22 where they want you to do this, but then you do it and it's ineffective even though they're doing the things you say, and then you just get wrecked anyways.  

[00:50:33] Unknown:

Okay. What else do we wanna unpack? I the way I wanna end it is,   I I mean, I wanna have a discussion over,   you know, how Bitcoiners should act.   Like,   like, how Bitcoiners that care about financial privacy should proceed,   impact on Monero. But before we get there, I just feel like there's   there's a little bit more to unpack on the Ethereum side of things here.   What else do we have? GitHub.   Should we have a conversation about how   GitHub is this centralized   server   it's it's a centralized service for Git.   I   I think an important takeaway here when these things kind of happen, I think it's really important that people take them as learning experiences, and we learn from them   as much as possible because the best way to learn is to live.  

So if we're living through these things, we should learn from them,   And it's a,   it's it's a commonality that I've I've tried to practice,   throughout   my time in in in the Bitcoin space.   And so   with all these things, the way I kind of look at it on a high level   is   everything has trade offs,   and, ultimately,   people will always choose the most convenient option,   or most people will choose the most convenient option. And usually when we look at trade offs,   there is a trade off, a direct trade off between convenience and privacy and security.   And   when we look at the Bitcoin   privacy space,   we see that trade off in action. And you see,   the centralized blinded coordinators like Whirlpool   and Wasabi   that are making a convenience trade off   that the trade off is, you know, there's a centralized entity that could be pressured,   by governments. And then you have something like join market that is significantly less convenient to use,   that is made to be more robust.  

And I   from government regulation, pressure, centralized choke points.   And   I think it's prudent to realize that there's nothing   inherently wrong,   and it's probably the best decision in general   to use.   If you don't need, you know, the full   most   sovereign, censorship resistant thing at the time,   then it's not necessarily   a bad decision to choose something that trades that off a little bit for convenience.   But you need to be prepared   for a situation   where you don't have the liberty of that convenience anymore,   and you need to use the more robust option. You need to use the more sovereign option.   And I think there's examples of this in multiple places,   with this tornado situation.  

One of them is,   the front end, which was accessible on clear net and hosted I believe it was hosted on AWS.   That makes a more friendly experience to people who wanna use it.   Now it can presumably be run as a Tor Onion service   and not host on AWS.   I wouldn't be surprised if that happens going forward.   Another aspect here   is the GitHub repo.   Git was designed to be distributed   that anyone could self host it and you can interact with each other, But GitHub provides this nice central spot where everyone can communicate with each other.   You have profiles. You have almost like, a LinkedIn for devs type of situation.  

And people gravitate towards that, I would say, for convenience. You I think you can map all of that stuff into convenience.   With Bitcoin Core specifically,   they mainly use GitHub for their communication.   Well, not for for all the communication and coordination around Bitcoin Core development.   It is one of the main staples.   But backups are kept, and, theoretically,   not even theoretically,   in a situation where GitHub is censoring Bitcoin core,   they can move off of GitHub, and they don't need to be reliant on GitHub. And they there'll be a convenience hit there,   but they're capable of doing that.  

What do you guys think about that framing? Did I do a good job?  

[00:55:20] Unknown:

Yeah. And and I I I think the convenience factor too,   you know, it's not I well,   the issues,   and sorry. The issues, quote, like the GitHub tickets that are created,   like bug reports and conversations and stuff, those and pull requests are probably,   like, some of the the biggest   lock ins that really you know, I'm a developer myself, and, of course, I I I have a GitHub account, and, you know, I have code   being hosted in one of their in the GitHub repository. You know? So, like, this it's it's a struggle, but then it's also like   I think, it was a a year ago or 2 years ago that, I guess, like, the CEO of of GitHub says something along the lines of,   you know, I I have I have complete confidence that if we were to take down the GitHub or sorry, the Bitcoin repository on GitHub, that everything will be fine. Like, I they would get a lot you know, everything will just keep,   you know, trucking along just fine.  

And he got a lot of backlash for saying that, but I think the like, he wasn't implying that he would take it down. He wasn't implying that,   that, you know, he wouldn't do it.   He was just saying, like, look. Git is still distributed in nature. The underlying protocol for pushing code,   making branches,   merging code even.   So if he he it was more of a testament to believing in the Bitcoin community   that they they have enough backups everywhere, that they have enough people that are can coordinate outside of GitHub. You you did say, like, a lot of coordination happens   on GitHub. A lot of coordination also still happens in IRC as well.  

So it was kind of kind of a testament that, like, hey. Look. Like, sure. GitHub is the most convenient option. And   if they needed to take it down,   they can host it somewhere else, and, you know, maybe they lose the issues. Maybe they lose, like, the pull requests.   But it's,   I don't know. Like, I struggle with this. Right? Like like, I my preference as as a developer is to continue using GitHub until I no longer can,   for one reason or another, and then go coordinate in another   manner and and point my repository   somewhere else.  

So that's, like, in my opinion, my fail safe. And now I do appreciate the fact that samurai has you know, they started out that way too on GitHub. And then they said, okay. For redundancy reasons, let's host it somewhere else. And I think that was a great move, but I don't necessarily think it has to be the move.   Like tornado cash,   or, no. I'll I'll stop there. But there's enough mechanisms for people to point code in a different location   with an with enough confidence that, like, the code will continue on.  

[00:58:10] Unknown:

Yeah. There's   there's the NICE side of Git, which is the underlying   tool and protocol that underlies GitHub, GitLab, Gittee, all of these different tools. They're just front ends for Git.   And the fact is everyone who has ever cloned Bitcoin Core's code   has a copy of that, and anyone who is doing active development will have a current and up to date copy of that. So, like, even in the worst case scenario where,   GitHub takes down all the repos and there are no backups,   Every single developer will have a copy of Bitcoin Core's code on their computer, and many people who aren't devs will just because they cloned it at some point. So there's even in those worst case scenarios, there are recovery mechanisms. It it would be tricky because you have to figure out what the actual   state is you want to restore and start from, but it's it's definitely doable.  

But I think, like, looking at it from that perspective of having fail safes in place   and being willing to jump to those if you need to. Like, I I think GitHub gets a lot of   shade because they are owned by Microsoft, but it is an extremely effective service. And one of the very important things within free and open source software   is the ability of getting other people's eyes on the code, getting other contributors coming in,   and easing that process of people being able to contribute. And and GitHub, with the traction that it has,   if you choose to go to another service, if you choose to host your own GitLab or something like that, you're going to lose eyes on the code. You're going to lose contributors. You're going to lose people who would have stumbled across it or wanted to open a PR or something like that.  

And that's just a that's an unfortunate consequence of GitHub being such a central piece of, really, the open source movement as a whole.   But there are lots of great alternatives that can be used. And GitLab was mentioned. That's what Samurai wallet uses.   There's a a more lightweight,   front end for Git called Gitea, g I t e a.   That's really, really great, especially for self hosting. Like, I self host Mincents, and I mirror all of my GitHub repos   to my gitie. And so it automatically keeps them all up to date and synced so that if if something happened, if my GitHub account was deleted and everything I'd ever worked on was gone, I'd still have a copy. It all be up to date, and I could just expose my Gitcheid instance and be good to go. And they have that as  

[01:00:24] Unknown:

they have that as a one click install on Umbrel too.  

[01:00:27] Unknown:

Yeah. It's a really common software, and it's it's so lightweight. It it runs great on a Raspberry Pi or whatever.   It's it's an excellent tool. So it it is important to have those alternatives, but I I do agree with Tony that, like, stay on GitHub till you have to get off. Like, I I think that's a reasonable approach,   and just making sure that you have those backups in place. You know, I can speak for, like, the Monero project has gone through this same situation of not wanting to be dependent on   GitHub itself and wanting to to be resilient, and   the Git the Minera community explored moving to a self hosted GitLab,   but it was, it was a a big hassle   And I think that's a viable method. And then there are great tools out there for keeping   backups of not only the code itself,   which everyone running Git and doing git clone and all that would have   the code, but they wouldn't have any of the issues, any of the comments, pull requests where a lot of the the meat of what happens in an open source project is.  

So having a backups in place that include those issues, include those PRs, and include all of that tertiary information that's not code, but is key to figuring out why things were done, when they were done, how discussions went, is also a very important piece there.  

[01:01:46] Unknown:

Would we do we all agree   that,   GitHub removing the repo   was   both the least surprising aspect of this whole situation   and the least impactful   aspect?  

[01:02:01] Unknown:

I I was surprised by it. I'm not gonna lie. I Really? I figured that they would just go after the smart contracts, and the code would stay. I mean, I I didn't expect the Tornado Cash people to go and deploy a smart contract or anything, but I I didn't expect them to go after the code and much less to go after the contributors themselves   and to   delete   unrelated GitHub repos   that were just created by the contributors who had contributed to TriNet cache in the past. I I didn't expect that to be anything else they were maintaining, basically. Right? Yep. Yep. Yep. And and that's that and that's by order of the sanction as well.  

[01:02:37] Unknown:

Any anything that they own directly or indirectly,   50% or more should also have been, you know, blocked as well.   So,   yeah, I I am I I agree with you, Matt. I'm I'm the least surprised   about this, the GitHub aspect of it too because,   GitHub has done this before, and especially   right after it was bought by Microsoft,   there is a there you know, an order you know, because, like, GitHub,   you know, Microsoft probably has better frameworks, technically,   to to to,   comply with,   and way more lawyers   and lawyers too. And then and then processes in place are ready for,   obeying,   all laws that they're,   in knowledge of. So they've done this before, and they've shut down accounts, and they've shut down code.  



[01:03:24] Unknown:

They essentially   They   Iranians. Yeah. They I mean, they bought GitHub, and then, like,   almost immediately following buying GitHub, they, like, banned all Iranians from the platform. And And, like projects.  

[01:03:36] Unknown:

And I it's it's tough.   I   it's I don't think it's from Malish   on on GitHub side. It's like, they basically have 2 options here.   It's comply with the laws or try to fight back.   And,   yeah, I   I I just don't see them fighting back for just the,   you know, the the the the, you know,   the small cases that they're presented with. It's just way easier just to   swat the flies than to really try to change the frameworks and laws in the United States.  

[01:04:15] Unknown:

Yeah. I mean, at the end of the day, they're a centralized multibillion dollar corporation.   Yeah.   They   those types of corps tend to,   if anything, over comply.   And and can I over comply?  

[01:04:30] Unknown:

Yeah. I wanna bring up another point too on sanctions,   and Super Fat Arrow, I see your comment as well.   If if you   look more into, like, why why sanctions exist and what they try to stop, I mean, one of the big aspects of it too is,   United States resources and United States financial rails and the US dollar and things like that. Right? Like, all the things that the United States, quote, unquote, owns, including its people and including the people,   that wanna   stay in good faith through United States.   That said, there was on the Ethereum thing that we haven't touched yet,   there were a lot of stable coin or, I guess, a lot. I think USDC was the main one.  

They're you know, stablecoins are inherently centralized as well,   and the sanctions, you know,   even applied to them so that they were able to go in and freeze all the,   USDC   associated   with,   with this as well. So, like, you know, the sanctions are,   you know, when you get into   other countries using cryptocurrencies,   well, like, that's not a United States financial tool. Right? So I'm, you know, I'm not gonna say too much more on   Iranians using cryptocurrency   because I don't I haven't read that article yet. But it's it's kind of designed to, like, prohibit   Americans   from doing something and prohibit,   resources that are United States owned,   financial tools from the United States,   and contributing towards,   a specific entity that they don't want using it?  



[01:06:09] Unknown:

So there's a couple of things here. 1st,   first, the the link that he that he commented about was what Superfat Arrow put in,   the matrix chat, which is this, Reuters report,   that came out yesterday   that said Iran,   made its first import order using cryptocurrency.   They insinuated in the report that it was an attempt to evade sanctions.   That's probably an accurate,   insinuation. I mean,   Iran is sanctioned   significantly.   The report states,   it's pretty vague. The report says that the order was for $10,000,000 worth of something.   Doesn't say for what,   and it doesn't say which cryptocurrency was used or how it was used.  

So it's a very basic report. It   is   interesting   to me most that it happened on the same day   that all the   tornado cache stuff came out.   So that makes it more relevant, I think, to this discussion than it would otherwise. I mean, I I think people should assume   that sanctioned con con countries are gonna have more use for Bitcoin and other cryptocurrencies,   than nonsanctioned countries because they don't have access to the traditional financial system.   Specifically if they're energy rich countries like Iran   or Russia,   where they can also have access to mining, which gives them a permissionless way of   accessing the networks to begin with.  

So that is something we've expected for quite a while.   But to see it basically drop in the same days as as the tornado cache stuff,   is definitely an interesting development. The other thing   Tony mentioned, which is one of the last two things I have on my list on the Ethereum side of things that I wanted to unpack here,   is Tornado Cash allowed you to   to,   to use mixed assets,   to use wrapped assets.   And what that means is they allowed you to use USDC,   centralized   coin attached to US dollars held in a bank account by Circle   and Coinbase backed by Goldman and BlackRock,   with Tether   and with wBTC,   which is the same kind of product, but with Bitcoin held by a BitGo.  

And all 3 of those,   as soon as   as soon as, the sanction order went out,   they got frozen   by those custodians.   So, obviously   I mean, it's just a perfect example   of of why these,   this idea of wrapped assets is such a dangerous trust proposition. It's it's   specifically the trust proposition that was   attempted that that was solved by Bitcoin and other cryptocurrencies,   right,   where you don't have a third party holding an asset in a bank account   or them or if in Bitcoin's case, on their keys,   you have this native bearer instrument that you have full control over.   Yeah. I I Yeah. I think it's,  

[01:09:40] Unknown:

you know, the only other thing you you brought up Bitco, and I, I didn't realize they were also involved in this as well. They is it I wanted to just note that, you know, Bitco has been hit with,   you know, fines in the past for,   not being as strict about sanctions in the past too. So,   specifically, with Iran, I believe it was just a multisig,   that they helped assist with. So it wasn't even, like, a completely custodial thing. But   that was to in my mind, like, that set really   interesting precedent for   even being involved in a multisig   and, you know, participating   in a in a quorum and assisting with that when it comes to,   when it comes to sanctions.  

So, I'm I'm not surprised that they I was I didn't know they were involved in this, but I'm not surprised that they were really quick   to act, based on them getting hit with fines previously.  

[01:10:41] Unknown:

Yeah. I mean, this was particularly   relevant to me because   there's some outspoken members of   Bitcoin Twitter who   insisted to me many times that the best Bitcoin privacy tool was using wrapped Bitcoin and tornado cash,   and this is a perfect example   of wrapped Bitcoin not being Bitcoin and bringing in additional third party risk.   So that's why I pinpointed the wrapped Bitcoin situation pretty quickly.  

[01:11:18] Unknown:

Yep. It's basically just a custodian,   someone else's keys.  

[01:11:23] Unknown:

Yeah. You have a custodian holding it, and they can freeze it at will.   And then do you have anything to add there, Seth, on the wrap side?  

[01:11:33] Unknown:

I don't think so. It sounded like y'all y'all covered it well.   It would be interesting to consider pediments from this angle, but I don't know if that's something you wanna get into today.  

[01:11:43] Unknown:

I mean, I think fetiments are highly relevant to this discussion.   I think it goes hand in hand with   what I said earlier about   using a more convenient option if available to you. But if it's no longer available to you, then moving to the more sovereign option.   I think Fedimins   have a different strategy   than Tornado Cash   in that   the goal is not, you know, one large Fediment,   but it's anyone can spin up a Fediment anywhere in the world,   and they're all interoperable with each other,   which obviously does make enforcement   more difficult.  

And I think, you know, when we were on your show discussing it, this is one of the key reasons why I said   it's important   that   that, essentially, to me, Fedimint are dead on arrival if it's not easy for people to spin up self hosted federation servers,   Federman servers   that operate through Tor and don't dox their IP address.   And so that's that it's a it's a different strategy in this situation, which is basically a   almost like a whack a mole strategy,   just that there'll be so many small pediments all around the world that are operated through tour that it's like,   you know, it it's it's hard to enforce in that level, and that's kind of I I don't think   I don't think my thinking on Fedimans has really changed based on this   development,   but that's also probably because I was already   more pessimistic   and paranoid than most people when thinking about this kind of stuff.  



[01:13:41] Unknown:

Yeah. And I think a little bit of,   when when bringing up Fedimint and and this kind of thing, it's more akin to   you can just consider each   federation   as its own   service that it's providing, right, its own custodian. So   there probably won't be, like, a sweeping change that says, like,   okay. All Fedimint servers are now sanctioned. Like, that's probably not what's gonna happen. Right? Because you could have like, Coinbase could switch to Fedimint.   Right? Like so it's like it's it's it's more of an implementation.   Like, who can sign up? You know? Are are Fedimint servers,   if they get large enough, are they   appropriately   complying with all laws and regulations? Are they doing this? Are they doing that? Right? So, like, it's not gonna be a,   like, a sweeping,   Fedimint is banned or, like, anyone that's operating   Fedimint software is, like, put on a list or is going to prison or anything like that. So I think it's it's all gonna come down to,   implementations   and policies.  

And and and then, Matt, like you said, like, if I'm a Fedimint server for just   my family, right, that's a completely different story than, like, a Fedimint server that's, like, trying to operate globally. So I think it's gonna be   no. They they almost just, like, shares any risk that any,   you know, custodian really has. It's just   yeah.  

[01:15:09] Unknown:

Yeah. I mean, we've seen custodians   get targeted in the past. Pretty much the assumption everyone should make is that any custodian that gets large enough will be targeted.   We saw that the most recent large case was BitMEX.   But I think we also,   a lot of us overestimate   how quickly regulators move,   And a perfect example is, you know, Wallet of Satoshi,   which is a completely custodial lightning wallet,   that's been doing decent volumes and has lasted way longer than I expected without any kind of KYC.   Now that shouldn't be   I don't want that to be taken the wrong way. I still expect them to either implement KYC or shut down at some point.  

But the point is is that's a single custodian   that has full view of funds, that can rug pull at any time,   that is being run by a known entity in Australia.   So if you talk about a multi sig custodian that can't see   transactions that needs to collude with each other, that can presumably be run anonymously,   which is key,   once again, to the whole thing to me is that you're able to run these servers over Tor   and self host them relatively cheaply.   You're just improving that status quo of what already exists,   then if that convenient option if that option   is not   workable in the current landscape,   then   you move to less convenient,   more   robust and sovereign methods,   tools.  

That does that make sense?  

[01:16:58] Unknown:

Yeah. Yeah. I definitely think so. And I think the   the importance, like you said, of how easy it is to spin this up and how easy it is to do so in an adversarial   environment,   will really dictate how useful something like Fedevents could be.   I mean, I think Tornado Cash sets an interesting precedent that maybe they could go after anyone contributing to something like Fedimint at at a developmental level. They could take down repos.   They could say that anyone operating an instance of Fedimint is breaking sanctions laws because   some Iranian or some North Korean uses Fedimence to try to to move funds. So I definitely think that is something to be   concerned about and thinking about,   because it it could happen. And, I mean, I think Tornado Cash is like, I wouldn't have thought that very I would have thought that in, like, a worst case scenario before this, but I think it seems much more realistic that we have to think about them going after   broad privacy tools and not just specific instances.  



[01:17:56] Unknown:

Well, I'm  

[01:17:58] Unknown:

I I don't know. I I kinda have to push back a little bit.   I mostly agree, but I think, like, there's this distinction here that's important. And I'm not trying to   justify,   certain certain rules and regulations that we put in effect, but,   I think there is a difference when it comes down to   software versus   hosted software,   Software that anyone can, like, run on their computer,   and utilize, like, that's more akin to free speech. Right? But I when it comes to host a software, as in even if it's hosted on Ethereum, if it's on a domain, if it's on a Tor address, if if it's, like, wherever it's being hosted and people are interacting with it, like, that can,   be, quote, unquote, an illegal service or, quote, unquote, something that could be sanctioned. Right? But I think, like, there's a big distinction here between, like, what the treasury service did,   the US Treasury did.  

And you could even argue, like, okay. Just because GitHub took down the source code like, the source code wasn't the problem.   GitHub just had to take down the source code because it was owned and operated by a sanctioned   entity.   The software itself was not,   what was sanctioned here. And,   you know,   and if and if FETI,   the company,   well, I'm not even gonna say the it's an open source software. Right? So, like, anyone could contribute to it. Yeah. MIT license, FOSS. MIT license, FOSS. It's not a hosted entity. It's not being hosted itself. Right? So, like, I think there's a big distinction   between running   software locally   and,   interacting with a hosted service that is running specific software in a specific way. So I I I have to push   back a a little bit on   just the idea that, like, they're going like, yeah. They wanna go after privacy tools. Right? Yeah. But I don't think, like, just simply   running or using   software locally is the problem. I think it's interacting with   host of software that's more of a problem than locally   local software, that's open source. And I and, I just think that's, like, an important distinction to keep in mind here, not justifying one thing or another, but, there is kind of a little bit of a difference between   software as free speech   and host of software.  



[01:20:28] Unknown:

But, I mean, I think if we look at Fedimence,   they're they're in a worse it seems like they would be in a worse legal position than something like Tornado Cash. They are centralized, and they are custodial.   I mean, you could argue they're decentralized because it's a federation, but not really because the federation members have to know each other. It's each individual   federation, right, as a host of service, not the software itself. But the same thing could be done with Tornado Cash. I mean, it it wasn't it was running on Ethereum, but anyone running an Ethereum node is running that smart contract and can interact with it at any point in time. Obviously, that's less people than, like, a Bitcoin node, but it's it's not as if it was a centralized   hosted   custodial tool.  

It's the opposite. And the fact that it is undergoing sanctions and its code and its contributors,   I think, is a   something we need to be mindful of moving forward for sure and something we need to be considering how how we build these things so that they can function in adversarial environments.  

[01:21:28] Unknown:

I I I think I agree with both of you guys.   I think a a useful example here to me is   is signal messenger.   Or at least what I'm trying to get   to make clear here is is is with the trade off signal mix.   So signal obviously allows you to easily and conveniently   communicate with friends and family   in an encrypted way.   Now I don't think   I I personally think   our laws protect   using encryption,   and they protect freedom of speech,   and they protect   privacy.   But, obviously,   history has shown that we can't rely on those laws. I think it's relatively reasonable to expect a scenario   where signal essentially is made illegal in America.  

And there's been some narratives out of   different members of congress   and rebuttals from signal in that regard and stuff to   in that in that notion, in that idea that, okay,   if they if signal doesn't implement some kind of backdoor,   it's made illegal.   In that situation,   we still have false tools available to us   to communicate with each other in an encrypted private way.   But   signal itself   is obviously completely dead in the water,   fighting a legal battle, hopefully, winning the legal battle. Right?   So I I feel like it's a good example of   if you're able to use a slightly more convenient tool, we have way more people using encrypted messaging than if they were using PGP.  

But at the end of the day, you're able to move to a more sovereign tool, and we have those tools available to us if the need arises in the future.  

[01:23:28] Unknown:

And practice those more sovereign tools before you need them, I think, is a big call out as you you don't wanna be blindsided and have no no idea what you're doing   when you enter that adversarial environment. So practice and understanding those tools ahead of time, even if you use the more convenient option, is important.  

[01:23:44] Unknown:

100%.   And then that brings me to our last item on the Ethereum side,   which is   they are planning on moving to proof of stake shortly.   There has been a lot of talk   about the concept of freezing   Ethereum that is being used in Tornado,   similar to the way   WBTC   and USDC got frozen.   And, also, I've had   some   anti Freedom Bitcoiners   call me out on Twitter   asking the likelihood   of CoinJoin Bitcoin or Bitcoin that has some kind of collaborate   collaboration   transaction history on it getting frozen.   When we talk about these native assets getting frozen, not these wrapped assets that are held by a third party,   we are talking about, essentially, what is a sophisticated   mining censorship attack,   where the miners who are including transactions   in a block,   are coerced   or forced   are they collude with each other to not include certain transactions   in a block, so you're not able to essentially send the Bitcoin or send the ETH.  

Now Ethereum is currently still using proof of work. They have miners.   The mining set is relatively distributed.   In a world where Ethereum moves to proof of stake,   I think there's very good reason to believe   that those validators will centralize   among regulated entities, such as exchanges,   Binance, Coinbase,   Kraken.   It is interesting to me   that really if, you know, fortunately, I'm not an Ethereum stakeholder.   But if I owned Ethereum,   to me, this should be,   like, almost perfect timing wake up call to abort the proof of stake transition.   It seems like   the Ethereum side is kinda just ignoring that aspect.  

Would you guys agree with me   that   this situation becomes an even more interesting scenario   or even more dangerous scenario in a pro post proof of stake world.  

[01:26:21] Unknown:

Yeah. I definitely think so. I mean,   like you mentioned, the the control   over percentages in the network once proof of stake happens is gonna rapidly shift towards centralized staking services.   Not that they'll necessarily be dominant, not that one will have over 51% control or anything like that, but   there will be a at least a large percentage of the network in those centralized   and regulated   staking services.   And so   if this had happened after proof of stake, it would have been interesting if the US Treasury had tried to pressure those regulated entities to   prevent transactions that were to or from the Tornado Cash smart contract, because in theory, they could. I don't know how slashing would work in that scenario. I don't know enough about the   the approach taken in proof of stake by Ethereum to know how the rest of the network would respond if there was a I think we're gonna find out. Yeah. It see it seems like it. It seems we're heading that way. Entering an an adversarial environment and switching a proof of stake at the same time is a   a spicy set of things to combine.  

But it it really will be the true test of if all of the proof of stake advocates have have truth in the things they've been claiming or if it's gonna backfire in a massive way.  

[01:27:35] Unknown:

I've got a I've got a hot take too from from Ben Carmen. He's being censored on Twitch right now.  

[01:27:42] Unknown:

The Not by me. He's being he's being censored by Amazon. He's not going to Matrix chat. Yeah. He probably said  

[01:27:49] Unknown:

Tornado Cash, and that's why it got censored.   The f two point o beacon contract on Ethereum was also created by coins from Tornado Cash too. So it's kind of a you know, it's it's an interesting   aspect as well. But, yeah, I I agree. I mean, the Bitcoin Wait. Wait. Wait. Wait. The beacon contract was? Yeah.   So that that's, like, the original contract of I think I think so. I don't know exactly how that works, so that's that's his,   that's his take.   But going back back to it, like, I I I I think you're right. And not only is it, like, does the power shift   to large stakeholders, but it's like who those stakeholders are and those typically, like, regulated cucks.  

So we're we're definitely gonna see a big, big change, I think.   I think was it Marathon a while back, the one that tried to censor transactions and they walked that back? Full fact compliant clean blocks. Yeah. Which is so funny too because then, like, after enough   hate on Twitter, they backtracked it. So it was like, what were you doing in the first place? Like, the white like, you obviously didn't need to do that.   So, yeah, I I agree. When the more the more regulated cocks that are controlling   the the chain,   you're just gonna you're gonna see it massively   change what they censor and what they don't censor.  



[01:29:11] Unknown:

And there's definitely   some   validity there on the   something that I've a lot of us have been very vocal about, which is   that we don't want, you know, too many large regulated US miners   in the on the bit you know, securing the Bitcoin network,   for that for a similar reason.   Now there there is an interesting aspect of this mining censorship is that,   if a large group of miners are choosing not to include your transaction in a block,   you can raise your transaction fee.   Presumably I mean, the same thing applies   in a proof of stake system, all else equal,   and you increase your transaction fee until,   it is included in the block. At that point,   the miners who are attempting   to   censor that transaction have a choice to make.  

They can choose not to build on top of your block and essentially try and,   create their, you know,   a fork of that chain and and build   themselves. If they have   a significant majority of the hash rate that could be successful for them, it will be very expensive,   gets more expensive the less hash they have.   On proof of stake,   with Ethereum, there is a slashing component   that Seth mentioned.   They are constantly changing how all of that works, and I do not have enough time in the day to pay attention to it.  

[01:30:50] Unknown:

What changes, like, 5 times a day.   But  

[01:30:54] Unknown:

but I will stand by my previous statement   that it does appear that if they move forward with proof of stake, which it appears they are planning on doing full steam ahead,   we will find out pretty soon   how that all works out in practice, and I you know, it will be very expensive lessons for people   is my expectation.  

[01:31:17] Unknown:

Yeah. I mean, the the other saving grace here is that we're not we're not gonna change the Bitcoin transaction fee model. Right? Like, even if we like, the whole idea of tail emissions and all that bullshit,   like, no one's no one's gonna be no one's gonna be going along with that. Right? But Ethereum, they change   difficulty adjustments all the time, difficulty bombs. They change the the ways the incentives work all the fucking time. So it's like, if it became a situation where, like, a, you know, a bunch of minor,   you know, proof of stake fees were, like, coming from transactions, but then there are a lot of transactions being censored and, you know, money on the table and, like, regulated institutions are just refusing to mine them. Like, if it ever came down to, like, all the the proof of stake miners want more money, they'll just fucking change the code, and everyone will go along with it. Right? So it's like,   the incentives just don't line up, and they don't have   solid foundations for how the incentive should be.  

And when with the rich people controlling the chain,   they can just fucking change it at will.  

[01:32:20] Unknown:

And there's there's a there's a key aspect here that I wanna make clear.   Here, we're talking about protocol level censorship.   Most you know, 99% of the time, what we see is,   if you go for protocol level censorship, I would say, is   the hardest reach in all these situations. And usually, when you see   actions made, it it it   focuses on the lowest hanging fruit,   easiest things to enforce,   impacts 90% of people,   best bang for your buck type of situation,   and that's usually by,   weaponizing the regulated services in the industry.   So what I do expect to see play out here   is people that interact with Tornado Cash. People that indirectly interact with Tornado Cash are gonna start seeing their accounts frozen, closed,   unregulated services.  

We've already seen that happen with collaborative transactions in the past.   Services like BlockFi explicitly state,   you can't use CoinJoin before or after using BlockFi.   So, like, when we go back to, like, the Jimmy Fallon dusting example,   like, I could see a world where Jimmy Fallon goes to deposit some ETH into Coinbase or withdraw ETH from Coinbase to his Jimmy Fallon account. And,   like, Coinbase's automatic change surveillance tool just flags his account, freezes it, and then he has to go through, like, a customer service quagmire for weeks or months. And because of Jimmy Fallon, he'll probably get it reversed, but if it's just an average person, they might never get it reversed.   So a lot of these pain points do kind of   affect people that are are focused on using these regulated services that connect with the traditional banking system.  

But   it doesn't mean that if you don't interact with them, you're completely immune. It just means you're more resistant to those tactics   than those who rely on them.  

[01:34:27] Unknown:

Yeah. It's much more likely that the regular person, whether they're just part of the dust attack or if they actually have used Tornado Cash in the past, they're much more likely to just run into fungibility issues like you mentioned with coin joints. So I don't think they would need to worry about some kind of sanctions action against them, but we'll obviously have to see. But, definitely, the more likely one is regulated entities are   gladly going to comply with the NOFAX sanctions list. So if you have funds that have touched Tornado Cash,   I'm curious to see what happens.  



[01:34:56] Unknown:

Yeah. And just to go to show how messy this type of situation can be on these open ledgers,   is, like, you could send   someone could go buy a sandwich with Ethereum,   and the sandwich owner can then take that Ethereum and then   send it to Tornado Cash,   and that could still flag the person who was buying the sandwich even if they didn't even know that Tornado Cash was being used by the recipient.  

[01:35:22] Unknown:

Yeah. And the cost of compliance is also really high too. So, like, sometimes   and not to, you know, justify some of the actions by some of these exchanges and custodians, but, like, sometimes it's like they don't they don't want to have to deal with it if, like, 0.1%   of users   are coming in with with with funds, from Tornado Cash or whatever. You know? It's just easier. It's probably just easier to not even question a thing. Just say, sorry. Your account's closed. They you know, Coinbase has how many, you know, other millions and millions of users. You know? That's they're not a problem case. So it's like you know, even just like, creating support tickets or whatever, it's, like, costing them money, and they're already   a nonprofitable   business. So it's like, it's just easier just to overcomply,   not have to not have to deal with customer support tickets and say, like, sorry. You're high risk and shut down their account.  



[01:36:14] Unknown:

Okay. So   I think this was a very productive conversation. I'm glad we had it because I don't think many people will have it just because of the chilling effect of sanctions, and people just don't like talking about privacy in general because,   our society has groomed people to think that talking about privacy publicly,   is something you should be ashamed of or concerned about.   But, ultimately,   Ethereum is a shitcoin that is,   built on very poor fundamentals,   and I don't think can handle adversarial environments, and I think we will see that.   So the question here is   for the you know,   to before we wrap up this conversation, the question here is   what lessons,   you know, should should Bitcoin users,   Bitcoin stakeholders, and Monero stakeholders take from this? And I I throw Monero in the bucket because we have Seth here.  

And, obviously, because Monero is a group of stakeholders that are very focused on privacy.  

[01:37:17] Unknown:

I think the   a lot of the big ones we've already covered, but I I think the key takeaways for me are   build these tools if you're a developer or someone who's   even just active in the community,   build these tools in a way that they can be resilient to adversarial environments. Because   I think we've been very spoiled over the last   decade plus where Bitcoin has really had an a very easy path.   Many people don't feel like that, but I think it really has had an easy path,   in usage and in adoption and has not been in this type of adversarial environment before.   So I I think for the the builders, make sure that you're thinking about how your tool, how your code, how your service can function in adversarial environments.  

And, again, not specifically saying sanctions evasion, but,   in authoritarian regimes and countries that crack down on Tor usage and in all of these different scenarios that we see worldwide. Make sure that your tool has the ability to function   in spite of those.   For the average user, I I think the big thing, like, you also mentioned is, like, yes, use the convenient tool that also protects your privacy for now, but   spend the time now before you have to to understand what other tools are available and how to use them, so that if your favorite tool I mean, if you're an Ethereum user   and suddenly Tornado Cash is sanctioned, how are you going to gain privacy on Ethereum? Like, what is your approach there going to be?  

And you could take you could approach that from the Bitcoin angle. If if you use Samurai Wallet right now,   but you're worried that Samurai Wallet somehow would get taken down or sanctioned or whatever, figure out a path towards what you can do for privacy on Bitcoin if you don't have that tool for some reason.   So making sure that you have those options available, that you have that ability to keep yourself sovereignty and autonomy open   no matter what happens to your favorite tools.   And I think the last one is just not to let the   the propaganda and psychological pressure that goes with things like this get to you. I'm I'm glad that I've seen a lot of responses on Twitter that are very focused on   the need for personal privacy and how privacy is a right and is not a   is not a criminal thing. It's not something only only criminals need. But just,   I definitely hope that people continue to keep their heads up, keep understanding why privacy is important, and don't let actions against privacy tools   lead you to think that the the fight for privacy is over, or that it's it's pointless. And I think we've seen the the beautiful ways that both cryptography,   the free and open source   software movement, and Cypherpunks have continued to push forward   either alongside of or against,   the current legal system that they're in and the current environment that they're in. So I'm I'm optimistic   that's gonna continue,   and I'm thankful for all the tools we have at our disposal right now.  



[01:40:03] Unknown:

That was, that was so well said, Seth. I'm not even gonna attempt to  

[01:40:08] Unknown:

add on to that. That, yeah. I mean, you can go out your time to talk about Monero. So Well,   before we before we do,   the,   so there is a similarity here, and it's a question I've been getting   by people privately   since this unfolded.   There there's a there's a similarity here that if you used   if you used Tornado Cash on Ethereum, it's explicitly visible   on chain. Like, it's very obvious if an account interacted with Tornado Cash.   It is also the similarity   at play here is it's also   very clear if someone uses collaborative transactions on Bitcoin.   You can see them on chain.  

Now there's some kind of there's some collaborative transactions like PayJoint,   which are designed to look like normal transactions,   but the main   but those provide more,   probability   busting   type of   defense at scale,   while   coin joints are more,   explicit tools that are designed to to break your own personal   trail on chain, and they're very visible because they use equal outputs. So you can see them on chain,   and you know someone used CoinJoin.   So there's a lot of people out there right now that are thinking to themselves,   is this   a situation   that shows me that I should use CoinJoin now, or is this a situation that shows me   that I should wait and not use CoinJoin now?  

What   what would you say to those users, Seth?  

[01:42:01] Unknown:

I mean,   I I'm definitely a   a person who's focused on privacy, and I I worry that if you don't need privacy now, you will in the future. So if you take that approach of, I don't need on chain privacy today, so I'm gonna forego the fungibility issues that go along with using privacy tools on Bitcoin,   you risk the activity that you do today being something that   ends up being harmful to you in the future.   Because, ultimately, once you make those transactions, you cannot take them back, and they're on a permanent immutable ledger.   So that's that's the big deal with Bitcoin.  

And that's why   and I said this on Twitter in the past couple days. I still advocate if you're using Bitcoin, you need to be using something like Samara Wallet. And, specifically, Samara Wallet is is still my recommendation, but you need to be using privacy tools because, otherwise, your finances are just in the wind. Everyone can see them, and that could come back to bite you in the future.   Obviously, there is some downside to that, and that downside really only comes with using centralized and regulated exchanges and tools like that.   But that that is the   that's the cost of the choices made with Bitcoin and the choices made for the protocol itself to be transparent by default and by design,   and   privacy being brought in in an optional app layer.  

It works well when you use it properly, but it is it's visible on chain. Everyone if if you bought funds in Coinbase, you send them to your samurai wallet and you mix them, Coinbase knows you're using samurai wallet. It is very, very simple. The fingerprint is very clear.   And that's just one of those downsides. It's clear that you're opting into privacy above and beyond what the regular Bitcoin user does. And that those are those are really just critical downsides of the protocol itself not being private by design,   and that that just comes with the territory. But for me, it is not worth the cost to   not gain financial privacy today   over just that fear of a a an issue with fungibility or funds being,   flagged or something in the future. And if you're really worried about that, what you need to be doing is learning how to use the decentralized alternatives to centralized exchanges, the things like Robosats,   the things like Bisc,   the places where you won't get funds flagged because there's not a central entity who's doing KYC AML and all the stuff who's who's gonna be at, kind of running the running the show there. So those things are important. I can also touch on,   like, why that's one of the reasons I appreciate Monroe's approach there, but I'll let Tony jump in before I get to that.  



[01:44:35] Unknown:

Yeah. I think that was well said. And the only other thing that I would add on to it is, like, you know, the thing   that you're   you, you know, may be doing legally and fine today, may be illegal tomorrow. And even if, you know, you're still like, okay. Well, I'm not gonna and this goes well beyond   legality and and and things like that. Right? Like, I'm not trying to say, like, you only need privacy if if you're doing legal things   or not. But, like, I think the point is, like, you know, laws change. Like, cancel culture changes. Like, it's an ever changing landscape. Right?   And, I I think, like, you know, you should seek privacy as much as you can in order so you don't just get swept up in bullshit tomorrow,   even if you're doing something completely legit and, you know, no problem at all, like, you know, you don't wanna get swept up in bullshit. So I and then, like, going back, like, going back to, like, okay. Well, I just I just, quote, unquote, tainted my coins by, like, being in the coin join, and now I can't go back in the coin base. And my my only thing is, like, well,   what were you in it for in the first place?  

If it's just number go up and that's the only thing you cared about, then, you know, I I don't know what to tell you. Like, I I didn't I didn't get in Bitcoin, so I can go back into the financial rails. So that's that's my only thing.  

[01:45:50] Unknown:

Yeah. I mean   so   from my perspective,   as a law abiding citizen,   there's something to be said here about   the fact that   my perception   of our laws as currently stands in the United States,   since I'm an American, and you should,   you know, apply that to wherever   your jurisdiction is,   is that using collaborative transactions   for basic financial privacy   is not a criminal act.   It's not an illegal act by itself.   Now   our country has been known to pass unjust laws in the future better than the past.   They might pass unjust laws in the future.   And, obviously, the stakes become significantly higher if you're using   collaborative transaction tools if they are made explicitly illegal in the future.  

And where I'm going with that   is to say, obviously, the main trade off here is collaborative transactions   are very visible on chain.   Your usage of them is very obvious on chain.   You might have trouble with using regulated services in the future.   If you're comfortable with that trade off,   you get financial privacy today   without explicitly breaking any laws.   And there's   a strong argument, I think,   that this type of action   in this direction   shows   that   it's important to get your privacy in order before   using certain privacy tools become explicitly illegal.   And I hate having to watch my words when I talk about this shit.  



[01:47:54] Unknown:

Yeah. That is the fun part of publicly talking about these things.  

[01:47:57] Unknown:

So, Seth, I have a great question for you. Mhmm.   Someone on Twitter, Monero guy on Twitter said,   that he's personally embarrassed that an Ethereum privacy tool got sanctioned before Monero.   Thoughts?  

[01:48:16] Unknown:

The memes are good.   I mean, there there's the there's the bit of it that I think is true and, like, what we talked about earlier where   when something gets sanctioned, it shows that the the US government is both worried about the usage of the tool, so they they see it as a threat.   They   feel impotent to solve it, obviously, because they can't just take it down. They can't just stop it. So when sanctions are taken instead of other legal action, I think it is an interesting   tell that at least the   the US government sees the tool as working pretty well.   So, I mean, in in some ways, it is interesting that something like Monero hasn't been sanctioned yet, but I think that's also another one of the strengths that comes with the entire protocol being privacy preserving.  

And so if they want to sanction Monero, they can't just sanction a specific app that some people use within Monero. They have to sanction the entire decentralized network, the desire the entire protocol,   and that's a very difficult thing to do.  

[01:49:17] Unknown:

So you don't think you don't think Monero will be the target of   this type of financial action in the future?  

[01:49:29] Unknown:

I definitely would not be surprised to see something like this,   mostly for the psychological effect. Again, like we talked about earlier, I think the main reason to do something like that would be to dissuade,   quote, unquote, compliant citizens   from using   something like Monero   because they're worried about the implications for them legally.   So I think that would be the main reason why something like that would be done, but   the simplest route for them is what they've been doing, which is   continue to constrict the easy ways to get access to Monero, getting it delisted from exchanges   using   regulatory bodies, not laws, but regulatory bodies and banking   ties to prevent exchanges from being able to easily support Monero.  

So I think that's the that's the easiest path for them right now and the easiest path to dissuade the the regular person from getting access to Monero and using it.   But if Monero's usage continues to increase, especially in in places that they don't like,   I I wouldn't be surprised to see it. I mean,   it's growing in usage of darknet markets.   In the past, it has been linked to at least mining of it has been linked to North Korea.   So, yeah, as it grows, as people understand what does and what it does well, I wouldn't be surprised to see some sort of legal action, but this is   precisely the environment that Monero has been designed for. Not, again, sanctions evasion, but this concept of an adversarial environment and ensuring that   in this worst case scenario, in in an oppressive regime, in an authoritarian regime,   Monero is built as much as possible to be resilient.  

And so all of the different trade offs that go into effect, the pros and the cons,   make it something that I think is extremely resilient and in an adversarial environment   and is prepared for this. I think Ethereum is quite the opposite, where it's it's built by developers who are optimistic about the future and and want to build something that is kind of building for the best case and not for adversarial environments.   And I think Bitcoin is is definitely more towards the Monero side of things and has been built for adversarial environments. But I think that I mean, you've talked about it a ton on the show. I've talked about it a lot. I think that the privacy piece has been missed and has very sweeping implications for how effective Bitcoin can be in adversarial environments.   That's so that's why I think, like, I wouldn't be surprised to see some action against my arrow, but it is very resilient and, in some ways, even more so than Bitcoin. And and so it would be interesting to see what that type of sanction would mean for   Monero and its usage.  

But I I wouldn't be surprised to see something like like that in the future.  

[01:52:03] Unknown:

Do   does your view   does your view on the path forward for Monero as a   project   change based on this tornado cash situation?   Say that one more time. Sorry. Does your does your view on the path forward from the Monero project, has it changed based   on this tornado situation?  

[01:52:29] Unknown:

No. No. Not at all.   Like I mentioned, I think this is, like, this is what has been in mind   when building Monero and when building out the ecosystem around Monero is what what does it look like for someone to use Monero,   buy Monero, etcetera,   under   worst case conditions.   And so I I think that the project has been well pointed towards this goal   and has been built for this kind of use case. So I'm I'm not   I don't think there's much to really change at this point. I mean, even, like, the specifics of this,   Monero has been prepared for years for GitHub takedowns or anything like that.   Mining decentralization   is is improved through,   commodity hardware mining, so they couldn't sanction mining hardware. It's improved through on chain privacy, so they can see specific transaction details and try to censor specific transactions, although they could try to enforce mining IPTI blocks, but again that gets very difficult because the miners aren't large scale industrial regulated miners.  

There are a lot of aspects of Anero. Again, they've just they've been built for this. Like, this is this is what has been in mind by the people who have been working on Monero for the last   8 years now.   So I I don't think there's any need for a big shift there, and I think a lot of   the the things that have been seen as excessive or,   unnecessary   in Monero's approach, I think, will rapidly be seen as   smart. And, yes, they have trade offs that do have drawbacks, that do have associated risks,   but I think people will start to understand why   the Monero community has made the choices it's made in the project's direction over the last 8 years even though we've been in a non adversarial environment for most of that time.  



[01:54:11] Unknown:

Yeah. There's something to appreciate about that aspect of it. Right? Like, it's not the most convenient option, and people realize that's not the easiest to use. It's not the most widely available thing. And people have figured out a way, and people are using it, in the ways that they they can in in in in a pretty good private way. I look at a lot of ways I wish   we could just, like, rip the fucking Band Aid off and on Bitcoin and just say, like, okay. Like, we're,   you know, we're not we're not trying to be using these regulated   custodians so much. We're not trying to we're not playing this happy go lucky world where everyone just, like, cares about number go up.  

You know, in some ways, I wish we would just rip that Band Aid off, but,   you know, it is it is what it is currently.  

[01:54:54] Unknown:

Well, then if we don't rip the Band Aid off, like, the Band Aid's gonna be basically ripped off   by others.   You know? Like, I mean, a lot of  

[01:55:07] Unknown:

Yeah. I mean, who have however the band that gets ripped off, let's someone rip it off. Like, let's, like, let's quit playing that.  

[01:55:14] Unknown:

I mean, just so, like like, super fat hour makes a good point on the matrix chat. Right? Which is something that I've said for a while, which is   the the single largest attack on Bitcoin   has been extremely   and has been ongoing,   and that's KYC   AML identification   on all of these regulated services.   And as a result, then those identities   are linked on chain   and then tracked through the system hurting everybody else.   When we look at the type of attacks that are possible   on users achieving trying to achieve   financial privacy when using Bitcoin.   Most of the attacks, especially the low hanging fruit stuff resolve rev revolves around   blocking access to those regulated services. And, usually, those regulated services are where you're connecting between,   the Fiat world and the Bitcoin world.  

Monero already lives in that situation.   Like, Monero already like, how many exchange how many bank exchanges offer Monero, Seth? Just Kraken?  

[01:56:25] Unknown:

If we're talking US, we're only Kraken at this point. Yeah. Yep. So, like,  

[01:56:31] Unknown:

so when we're talking about, like, worst case scenario for Bitcoin privacy users, it's like, okay. So they can't use 99% of exchanges   Like, you can't do that on Monero already.  

[01:56:48] Unknown:

Yeah. I mean, you you can still at this point, but that I mean, I do think that will likely continue to to change.   But,  

[01:56:58] Unknown:

yeah, we kind of have never had the chance to have a Band Aid. So, I mean, I wonder, like, what I kind of expect to happen is, like, to see, like, almost like a bifurcation of the network in the short term   or, like, medium term,   which basically, like, there's Bitcoin users that use it in a self sovereign way,   that use it privately,   that don't interact with the block fives and the coin bases of the world, and then there's this whole other subset that is   this this whole other group of Bitcoin stakeholders that are basically   using it in this regulated environment.  



[01:57:35] Unknown:

I I do wanna push back a little bit on that idea that if we don't have KYC AML,   Bitcoin is fine, and we don't need to worry about that. So exchanges are the only risk. I mean, even in that scenario,   you if you're gonna use a currency, you're gonna use it in person. You're gonna use it to buy things that may   connect to your ID in some way. If you're running a business that's using Bitcoin,   you're gonna pay suppliers. You don't want people seeing that info. So it's it's not like removing KYC removes all of the privacy No. Yeah. It's definitely not everything. It just makes everything so much more complicated when talking about a privacy perspective.   It does. And it it provides   broader   pseudo anonymity   than otherwise is possible with KYC. It it it makes at least that fragile pseudonymity   not broken instantly.  



[01:58:24] Unknown:

I guess, like, my my perspective on it is, like so we see in the digital privacy world so often   that it's the   all it takes is one mistake,   and that one mistake is usually what gets you. Right? And you see this in the high profile cases all the time.   And it's not just Bitcoin or cryptocurrency or Monero. It's it's it's everything on the Internet. Right? We have that term like the Streisand effect where Barbara Streisand tried to remove a photo from the Internet,   and   instead, the photo got reposted everywhere. And and so with with   when it comes to blockchains, obviously, that's on steroids because we expect the Bitcoin ledger to outlast all of us if it's successful.  

Like, this thing's immutable,   shared around the world,   transparent,   and is expected to last forever.   If you make a mistake on there,   you're not gonna be able to remove that mistake. Now when we talk about the little mistakes that people tend to make,   a lot of times that comes down to some kind of connection to KYC, and that is just my   that's that's basically where I'm coming from here.   And, like, the Bitfinex hacker, the the richest rapper of all time is a perfect example of that where they were   buying gift cards, and it was attached to their real life identity,   their legal name.  



[01:59:51] Unknown:

Yep. And, yeah, and I agree with that. Like, Bitcoin isn't sufficient enough. Like,   if if we're when we use Bitcoin connected to our identity, we're doing it wrong. I'm like, well, if you it's almost like the example case that you brought up, Matt, where, like, if you go to a sandwich shop,   you know, your identity is right there, right in front of the sandwich shop owner. Right? So it's   I wouldn't I wouldn't go as hard and fast as superfat arrow is here, but, he he's, you know, he's on the right track. Like, KYC AML is the list of activity here.   But we still need, you know, Bitcoin privacy to be a lot better.  



[02:00:26] Unknown:

Yeah. I mean, I will a 100% cosign that,   and I think I've been a big proponent of it. I think Bitcoin privacy tools have improved tremendously over the last few years.   I think they need to continue to improve, and I think they need to get easier to use, and I think time is of the essence.  

[02:00:46] Unknown:

Agreed.  

[02:00:48] Unknown:

Awesome.   Okay. Let's,   it's been a great conversation, boys. Let's wrap up with some, final thoughts.   Seth, final thoughts.  

[02:01:05] Unknown:

Oh, it was hard to go first.   I I think final thoughts for me are just I don't know. We've I've touched on it so many times already, but   just learn the tools,   Get ahead of the game. We're we are heading towards an adversarial environment, and anybody that wants self sovereignty, that wants autonomy   is going to need to be able to to leverage the the power that has been given to us through cryptography   and through open source code.   And so learning to   to harness those tools and use them to benefit you and your family and your loved ones is is gonna be more and more vital over time. So just go ahead and start today. I mean, that's why I love Citadel dispatch. It's it's actually actionable,   and there's a lot of stuff in here that that you can take and start to make changes to your your usage of Bitcoin and other tools today.  

So I think that's really the takeaway here. I mean, obviously, we talked a lot about Tornado Cash and   and other privacy tools, but just important to have an understanding of those and and have alternatives in case the one that you happen to be using or something that you like gets shut down. You need to be able to to to switch and to switch over again, not just yourself, but hopefully your family and the people you love and and bring people with you on that journey.  

[02:02:15] Unknown:

Awesome. Thanks again for joining, Seth. I appreciate you, and, to all the freaks out there, if you like listening to Seth, he has a fantastic podcast. Just search opt   out pod on your favorite podcast app. Thanks, Marcia.   Yeah. Of course. Tony, final thoughts?  

[02:02:33] Unknown:

Yeah. I mean, like, Seth is hitting the hit the nail with the hammer here. He's he's doing a final job. I I almost don't need to say anything at all, but I would I will echo that point. Like, you know, you know, don't be scared by all the privacy stuff or, like, quote, unquote, takedowns and enforcements against it.   You know, keep learning. It's Bitcoin's, you know, always gonna be a a changing landscape. All the   laws and enforcements and everything are ever changing. So just just keep learning, keep going at it, keep pushing yourself forward with the tools that you use and the things that you learn.   And and, yeah, it's just a shout out to, like, shows like so to all dispatch that are out there helping helping educate people.  



[02:03:16] Unknown:

Awesome. Thanks, Tony. I wanna thank our guests, second time for joining me on short notice to talk about about such a sensitive yet important topic.   To all the freaks out there, thank you for continuing to support the show via stats or subscribing or joining the live chat. I love all you freaks to join the live chat. Cortic,   we've seen all your comments. I love that you're here participating.   We have 2 more I have 2 more solo dispatches set up for this week,   both on Friday.   We're gonna have Sid in the studio. We're gonna be talking about grassroots Bitcoin adoption. He drove his motorbike around the country going to all the different Bitcoin meetups.   And then I'm gonna have Rockstar in the studio later that afternoon,   to talk more on this subject and to talk about a variety of things. Rockstar is always an interesting character   to have on the show. So if you haven't subscribed already,   open your favorite podcast app, type in dispatch,   click the subscribe button.  

That auto download button really helps as well.   And then if you like the video stuff, you know, pick your favorite platform, whether that's Twitch or YouTube   or   Bitcoin TV. If you subscribe there, you get notified. On Bitcoin TV, you do not get notified if you click subscribe, but they're all streamed there.   But if you subscribe on YouTube or Twitch, you'll get notified, and the archives are also posted to Rumble and Telegram.   With all that said, I do appreciate you all. Stay smart out there. Stay humble.   Peace.