• Recent arrest of founders of Tornado Cash, a decentralized private payments protocol built on Ethereum, is raising questions about the compatibility of KYC laws and permissionless money.
• Crypto influencer CryptoTea questioned whether Bitcoin’s Lightning Network or MetaMask do KYC and what stops cops from arresting developers.
• While most micropayments made using the Lightning Network are untraceable, US government banned its citizens from interacting with Tornado Cash and has since been arresting its founders for alleged money laundering activities.

KYC Laws vs Permissionless Money

Recent arrest of the founders of Tornado Cash, a decentralized private payments protocol built on top of the Ethereum network that severs the link between sending and receiving wallets, has raised questions about whether Know Your Customer (KYC) laws and permissionless money can co-exist.

Crypto Influencer Asks Questions

In light of these events, crypto influencer CryptoTea asked on Twitter: “Does bitcoins lightning network help facilitate untraceable anonymous financial transactions?… does Meta Mask do KYC?” She added that it is her understanding “that KYC laws and permissionless money can NOT coexist”.

Lightning Network vs MetaMask

An explainer on Kraken states that most micropayments made using the Lightning Network, a layer-2 payments protocol built on top of the Bitcoin blockchain, will be “nearly untraceable”. Meanwhile users can set up a wallet using wallet service providers such as MetaMask without submitting any personal information as required when setting up accounts bound by KYC requirements.

US Government Crackdown

The US government banned its citizens from interacting with Tornado Cash last year and has since been arresting its founders claiming that they knowingly facilitated billions worth of money laundering including for North Korean hacking group Lazarus Group. This crackdown has been widely criticized by members in the crypto community who believe it goes against crypto’s central ethos which prioritizes anonymity and permissionlessness over governmental regulations.

Conclusion

Ultimately this recent incident highlights an ongoing tension between governments attempting to regulate cryptocurrencies through KYC requirements while maintaining privacy and decentralization within the industry – two ideals at odds with one another yet both essential to creating an effective digital economy in today’s world.