NEAR Foundation’s Response to Tornado Cash, Ownership and Regulation

NEAR as an ecosystem identifies ownership––the ability for all people to control their own data, assets, and power of governance––as its most important shared goal. 

In light of recent regulatory developments concerning the cryptocurrency mixing service Tornado Cash and the ensuing banning of several services, it’s important to reiterate the Foundation’s views on privacy, ownership, and regulation. 

These are fundamental values for NEAR and for the Web3 movement more broadly. The ecosystem’s response to this watershed moment will have a lasting effect on the evolution of blockchain technologies and their regulation around the world.

Ownership and Privacy 

The NEAR Foundation believes privacy is essential to autonomy and the protection of human dignity. It forms the bedrock on which many other human rights are built.

Privacy enables citizens to protect themselves from unwarranted interference and affords anyone the freedom to negotiate when and with whom they share information. 

Everyone has a right to privacy because it is a critical aspect of ownership and autonomy. Individuals simply seeking to preserve their own privacy, or to build tools to support others in doing so, should not be criminalized. But each individual is also participating in a system that needs to be able to regulate itself. The NEAR Foundation believes in fair, reasonable, and proportionate regulation of blockchain technologies.

Web3 will never deliver on its potential if systems that allow participants to launder money, fund terrorism, or commit crimes are allowed to propagate. Blockchains are not starting entirely new systems from zero, in a vacuum. They are interwoven with existing systems of rule and law and must operate within and alongside them.

Work to be done

The Foundation acknowledges there is work to be done to educate regulators about the nuances of these tools. The goal is to build trust not erode it. 

Some of this will be about compromise. Until privacy infrastructure is more mature, KYC at the edges of a system is required, but inside the system, participants should have the freedom to move around privately within it. 

Improving and investing in zero-knowledge protocols is also critical: these allow the parties in a transaction to verify identities and validate sufficient data to establish trust while keeping specifics private. It’s something the NEAR Foundation and Pagoda are working actively on. 

Combining the two will be especially powerful so that KYC doesn’t need complete access to one’s information at the entire expense of privacy. In this way, Web3 can create an improved paradigm that is better both at preserving privacy and preventing crime. And communities should be able to have enough information to govern their own exclusion lists and vote to ban people who don’t follow the rules of the system. 

Collaboration and Community

While the Treasury’s decision to block and ban Tornado Cash is an overstep that may well create more problems than it solves, the Web3 community must recognize that more ill-informed decisions will be made if we don’t continue to make collaborative efforts to educate regulators.

A crypto-based Web will be much stronger only if it builds on the foundations of what came before rather than trying to rebuild an entirely new paradigm. 

Total crypto-anarchy is not the answer. Pragmatic ownership is. We must continue to correct the balance between preventing crime and preserving individual privacy. 

The Foundation believes in building communities that support the rights of individuals and enforce their own rules for working effectively together. 

Next Steps 

To continue the NEAR Foundation’s commitment to preserving privacy while respecting the rule of law, it will take the necessary steps to join Coin Center, the leading non-profit focused on the policy issues facing cryptocurrencies. 

Second of all, the NEAR Foundation will actively seek to establish an association to help ensure that validators have better protections when it comes to censorship resistance, and will look to appoint board members to the NEAR Foundation Council that align with this mission. 

Last, but not least, the NEAR Foundation is creating a grant fund for projects specializing in building Zero Knowledge (ZK) solutions to help preserve privacy while allowing projects and communities to comply with law enforcement. 

If you’re a project working on ZK technologies, please make an application to the NEAR Foundations grant team here and mention ‘ZK Grant’ in the referral section. Feel free to reach out to [email protected] with any questions using the subject line ‘ZK Grant’.