Coinbase bankrolls lawsuit against Treasury Department following Tornado Cash sanctions

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Coinbase is footing the bill for a lawsuit filed against the Treasury Department Thursday by users of the recently sanctioned crypto service, Tornado Cash.

The six plaintiffs include Coinbase employees and other users of the mixing service that was blacklisted by the Treasury's Office of Foreign Assets Control (OFAC) in August.

Mixing services like Tornado Cash are used to obfuscate crypto transactions, which while anonymous, are easily traceable. The Treasury Department argued this particular service was used to launder more than $7 billion worth of digital currency in the past three years by North Korean hackers and other bad actors.

But in some cases, mixing services are used for legitimate privacy reasons. One plaintiff, a senior security risk analyst at Coinbase, used the service to anonymize donations to Ukraine out of fear his address would be targeted by Russian hacking groups. Another had concerns about his family's security.

«Each is an American who simply wants to engage in entirely lawful activity in private,» according to the lawsuit.

The sanctions were a unique move by Treasury to blacklist open source software, versus an entity or person. Crypto enthusiasts have argued that the move was an overstep, sets a new legal precedent and could cause negative ripple effects for the tech industry.

«We saw this as a much larger problem,» Coinbase's chief legal officer, Paul Grewal, told CNBC. «It sets a dangerous precedent — if this code can be designated without any limits imposed by law, any technology any tool or system could be fair game.»

Grewal, former deputy general counsel at Facebook, said it could have a chilling effect on innovation. He likened the Tornado Cash scenario to police chasing