SEC Commissioner Peirce backs crypto privacy as Tornado Cash trial highlights developer liability debate

U.S. Securities and Exchange Commission (SEC) Commissioner Hester Peirce has publicly advocated for the protection of financial privacy in the crypto space, arguing that individuals should retain the right to make private transactions—particularly through open-source blockchain and DeFi tools. Her comments, made at the Science of Blockchain Conference, underscored the importance of preserving self-custody and the role of privacy-preserving technologies in maintaining civil liberties [1].

Peirce emphasized that developers of open-source privacy tools should not be held liable for the misuse of their code. She compared the situation to the 1990s encryption debates, where engineers like Phil Zimmermann championed the right to secure private communication. These early victories, she noted, were instrumental in enabling the growth of the internet, and similar principles should guide today’s regulatory approach to digital privacy [1].

The Commissioner’s remarks come amid the ongoing legal trial of Roman Storm, the co-founder of Tornado Cash, a crypto mixing service accused of enabling money laundering. The U.S. government has charged Storm with violating sanctions under the International Emergency Economic Powers Act (IEEPA), alleging that the protocol processed transactions linked to illicit activity. Storm’s defense, however, has argued that the tool is neutral and cannot be inherently illegal, pointing to the broader ethical question of developer liability in decentralized systems [1].

Peirce’s position highlights a growing divide between regulatory enforcement and the protection of individual privacy. She criticized the former DeFi broker rule, which would have required decentralized platforms to report user data to the IRS. “Doing so would deputize us to surveil our neighbors—a practice antithetical to a free society,” she stated. Her warning reflects concerns that overly broad surveillance measures could stifle innovation and infringe on fundamental rights [1].

The Tornado Cash case could establish a significant legal precedent regarding how courts interpret liability for developers of open-source protocols. The outcome may influence how regulators approach other privacy-focused crypto tools and could shape future debates on the balance between transparency and civil liberties. Peirce’s advocacy for a balanced approach underscores the complexities of regulating decentralized finance without undermining its core principles [1].

In a related case, the co-founders of Samourai Wallet, Keonne Rodriguez and William Lonergan Hill, have indicated their intention to plead guilty to charges related to operating an unlicensed money transmission service. The pair initially pleaded not guilty in April 2024, but documents filed in a New York federal court in June showed their decision to change their plea. The case further illustrates the U.S. government’s expanding regulatory reach into privacy-centric crypto services [1].

As the crypto industry watches closely, the legal outcomes in these cases may define the regulatory landscape for years to come. Peirce’s voice offers a counterpoint to more aggressive enforcement strategies, advocating for a framework that supports innovation while protecting individual freedoms. The ongoing trials of Tornado Cash and Samourai Wallet represent pivotal moments in the evolution of crypto regulation and the broader conversation on digital privacy [1].

Source: [1] SEC's Peirce defends crypto privacy rights as Tornado Cash developer awaits verdict (https://cryptorank.io/news/feed/ffd0d-secs-peirce-defends-crypto-privacy-rights-as-tornado-cash-developer-awaits-verdict)