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SBF
@SBF_FTX
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@SBF_FTX
3) Well, basically: Alice wants to send $100 to Bob. Should she be allowed to? After it's sent, if she requests a refund, should it be sent back?
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SBF
@SBF_FTX
4) Right now: a) cash is essentially fully free. You can hand a dollar bill to anyone. It's never reversible. b) ACH transfers only work from one person who has been whitelisted for an account at a bank that's whitelisted by the fed, to another. And they can be reversed!
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SBF
@SBF_FTX
5) So ACH uses a whitelist system: you can only send someone money if a set of institutions have explicitly said so. Cash just always works, as do bars of gold.
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SBF
@SBF_FTX
6) There are tradeoffs here. In favor of restricting transfers: a) you can cut off terrorists b) you can protect customers who accidentally sent money Against: c) state overreach for political reasons (economic censorship) d) commerce is much clunkier and doesn't 'just work'
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SBF
@SBF_FTX
7) Safety vs Freedom, I guess. Whitelists--like how ACH works today--provide lots of safety. But they make transfers, innovation, and commerce very difficult. Free systems--like cash--are clean and simple and, well free. But they could be used to launder money.
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SBF
@SBF_FTX
8) So what does crypto do? Well, right now, if Alice wants to send $100 to Bob: a) if Alice or Bob are sanctioned--e.g. on an OFAC list--then it is generally illegal. b) otherwise, it is generally legal also, crypto transfers are not reversible.
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SBF
@SBF_FTX
9) In other words, crypto uses a blacklist system: you can't send funds to/from a person or entity that is specifically blacklisted, but otherwise you are free to do as you wish (at least for peer to peer transfers).
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SBF
@SBF_FTX
10) I think this is a good compromise. Why? Because: a) it means that anyone who is facilitating financial crimes can be blacklisted by e.g. OFAC and cut off b) but for everyone else, transfers just work: they're seamless and permissionless.
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SBF
@SBF_FTX
11) You get most of the protection by blacklisting a few bad actors; and you get most of the freedom by otherwise allowing free commerce.
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SBF
@SBF_FTX
12) And so what does that mean for, e.g., Tornado Cash being sanctioned? I think, basically: I understand why it happened, and that it's important to prevent illicit finance. And it was still a blacklist--if an extensive one--not enforcing a whitelist for transfers.
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SBF
@SBF_FTX
13) What's important is that we not bleed over from blacklists to whitelists. That sanctioning North Korea doesn't slowly slip into only allowing economic activity with a few trusted parties.
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