Conversation

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?

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!

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.

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'

12:43 AM · Sep 27, 2022Twitter Web App

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.

Replying to

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.

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).

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.

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.

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.

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.

100