What Is Web3 Good For? | by Tomicah Tillemann – Project Syndicate

The current financial system works just fine for criminals, but poorly for millions of others around the world, including dissidents in closed societies. By thoughtfully harnessing new blockchain-based tools, we could finally start to eliminate the old tradeoff between financial privacy and security.

WASHINGTON, DC – The US Department of the Treasury’s Office of Foreign Assets Control recently sanctioned a technology called Tornado Cash, on the grounds that it “has been used to launder more than $7 billion worth of virtual currency since its creation in 2019.”

Such enforcement measures are nothing new. But what makes this case unique is that Tornado Cash is a piece of open-source software.

Essentially an automated tool, Tornado Cash mixes digital assets and redistributes them to preserve privacy. While we don’t know everything about Tornado Cash or why it was created, we do know that large sums of digital assets linked to illicit activity have moved through the protocol since it was launched, including millions stolen by North Korean hackers. Any American who uses the service now faces up to 20 years in prison.

Some believe that such sanctions are necessary to prevent money laundering, while others see them as a sign of government overreach. But whatever one’s perspective, it’s worth asking why there was a need for a protocol like Tornado Cash in the first place. The short answer is that our financial system is failing to balance privacy and security. Fortunately, this is a challenge that web3 (blockchain) technologies could help to resolve.

As a senior adviser to two US secretaries of state, I spent time in dozens of countries examining how different systems affect individual rights and democracy, and helping to design technologies and applications to strengthen open societies. In the course of this work, I have seen today’s finance systems failing by virtually every measure. More than a billion people worldwide – including millions in the US – lack access to basic financial services. Many cannot pay their bills or send money to family because they don’t have a bank account or identification, and others simply don’t trust financial institutions.

These suspicions are often legitimate. Carrying out transactions of any size requires us to share sensitive information like birth dates, addresses, and Social Security numbers. Regardless of whether you’re renting an apartment or a car, that information is routinely abused and compromised. Identity thieves have reportedly been hijacking accounts at Experian – one of the three major credit bureaus – simply by signing up for new profiles using the victims’ personal information. Another credit bureau, Equifax, exposed the data of 150 million people (or roughly the entire US workforce) in 2017.