ArbitrumDAO Contribution; Safeguarding Software Developers’ Rights

Abstract & Rationale - This proposal envisages a monetary contribution to DEF & Coin Center from the ArbitrumDAO to continue their policy, litigation & advocacy efforts in relation to open-source software & software developers’ rights.

Proposal authored by Immutablelawyer from Axis Advisory** 

Context & Preamble

The digital asset industry has been faced with recent legal challenges in relation to a software developer’s individual freedom to contribute to the development and subsequent deployment of open-source permissionless software. This goes as far back as 1990 when Phil Zimmerman released Pretty Good Privacy (PGP), one of the first openly available public-key cryptography applications that featured end-to-end (E2E) encryption. Zimmerman’s creation prompted a criminal investigation that was eventually dropped, resulting in federal court decisions that protect encryption under the U.S. Constitution’s First Amendment. This clash on personal privacy became dubbed the “encryption wars.”

Our team over at Axis Advisory has published a write-up that offers contextual information in relation to the above: Defending Open Source: A United Stand for Developer Rights and Software Freedom 4

In this regard, we are proposing a contribution from the ArbitrumDAO to DEF & CoinCenter to continue their policy & litigation efforts in relation to privacy-enhancement tooling and software developer advocacy. Some of the institutions’ most notable contributions with an industry-wide impact will be noted hereunder:

COIN CENTER

1. Coin Center’s case against the Office of Foreign Assets Control about adding Tornado Cash to the OFAC Sanction List, (naturally, Tornado Cash not being a person or entity but a mere set of open-source smart contracts running on the Ethereum Blockchain). Albeit the court ruling against Coin Center in the initial proceedings, Coin Center is currently in the process of appealing the judgment.

[Refer: Coin Center is suing OFAC over its Tornado Cash sanction 2].

[Refer: https://storage.courtlistener.com/recap/gov.uscourts.flnd.447304/gov.uscourts.flnd.447304.74.0.pdf];

1. Coin Center’s concerns raised to the Financial Crimes Enforcement Network (FinCEN) regarding the designation of convertible virtual currency (CVC) mixing as a primary money laundering concern (PMLC). In this regard, Coin Center highlighted the rule’s extensive scope and lack of precedent. They argued that the proposed designation lacks clarity and narrowly tailored definitions, potentially leading to the misclassification of legitimate transactions as criminal.

[Refer: Comments to the Financial Crimes Enforcement Network on “Proposal of Special Measure Regarding Convertible Virtual Currency Mixing, as a Class of Transactions of Primary Money Laundering Concern”]

1. Coin Center’s letter to the Senate Finance Committee highlighing the need for a regulatory approach that mirrors the successful, light-touch framework applied to the internet. Coin Center advocated for clear taxation guidelines on cryptocurrency transactions, emphasizing the importance of a de minimis exemption for minor gains from every transaction to facilitate the use of cryptocurrencies in daily commerce without undue tax burdens.

[Refer: Coin Center Suggestions to Address Uncertain Tax Treatment of Digital Assets]

1. Coin Center’s contributions to Roman Storm’s and Alexey Pertsev’s legal defense in relation to the following:

• Roman Storm’s legal dispute in relation to accusations levied against his person on charges of conspiracy to facilitate money laundering, operate an unlicensed money transmitter and violating sanctions [Court of New York]; and
• Alexey Pertsev’s legal dispute in relation to accusations levied against his person on charges of facilitating money laundering [Netherlands Court].

DEFI EDUCATION FUND

Some of the DeFi Education Fund’s most notable contributions with an industry-wide impact will be noted hereunder:

1. The DeFi Education Fund initiated a legal challenge against a patent held by True Return Systems, LLC regarding blockchain technology, challenging the novelty and validity of its claims. This action reflects DEF’s commitment to preserve the digital assets space’s core values: fostering innovation, ensuring open access, and maintaining an inclusive environment. By contesting what DEF consider to be an overly broad patent, they aim to prevent potential monopolistic control, ensuring the decentralization is not compromised.

[Refer: https://www.defieducationfund.org/_files/ugd/84ba66_0b48beb0dd404637b4d988988b1bf3fc.pdf1].

1. The DeFi Education Fund filed a legal complaint along with Beba LLC against the SEC, after they recently created and distributed their ‘BEBA token’ via airdrops. Beba and DEF are seeking legal relief due to concerns that the SEC may classify BEBA tokens as securities, which could end up hindering not only their business operations but also the broader digital asset market. In essence, the DEF are fighting against the SEC’s approach towards digital assets which has become overly broad without adequate rule-making procedures, stifling innovation.

[Refer: https://www.defieducationfund.org/_files/ugd/84ba66_3f7a8f2ca6614d7381122cb1beeed4a8.pdf].

1. The DeFi Education Fund submitted an amicus brief in support of James Harper against the IRS, advocating for the Fourth Amendment rights of cryptocurrency users. DEF emphasizes the need to balance law enforcement’s reach with individual’s financial privacy in the digital realm. They are arguing for a modern interpretation of privacy protections to reflect the realities of digital transactions and the traceability of cryptocurrency activities on public ledgers.

[Refer: DeFi Education Fund Files Amicus Brief In Coinbase Case].

1. The DeFi Education Fund also contributed to the support of Roman Storm’s legal defense arguing against the novel legal theories proposed by the government under the International Emergency Economic Powers Act and money laundering statutes. DEF emphasizes the importance of distinguishing software developers from the actions of third-party users, in order to protect software developers from being held liability for third-party misuse of their open-source.

[Refer: https://www.defieducationfund.org/_files/ugd/84ba66_063f9d1fd563466cadfa3f5434f918e9.pdf].

OBJECTIVE

Coin Center Contribution

The ArbitrumDAO is being provided the opportunity to vote & effect a contribution to Coin Center; the leading non-profit research and advocacy center focused on the public policy issues facing cryptocurrency and decentralized computing technologies.

By way of a brief; Coin Center’s mission is to defend the rights of individuals to build and use free and open cryptocurrency networks: the right to write and publish code – to read and to run it. The right to assemble into peer-to-peer networks. And the right to do all this privately.

Coin Center has been at the forefront of policy research, educating policymakers and the media about cryptocurrencies, advocating for sound public policy, and engaging in litigation to defend digital civil liberties of software developers and other stakeholders within the industry.

DeFi Education Fund Contribution

The ArbitrumDAO is being provided the opportunity to vote & effect a contribution to the DEF whose mission revolves around educating policymakers globally about DeFi, promoting grassroots supports, enhancing legal support across jurisdictions, and advocating for policies welcoming of decentralized financial infrastructure.

They have initiated several key projects and grants to advance its objectives. One of their initial endeavors targeted a group of organizations and individuals, with the goal of expanding the understanding of decentralization and the DeFi ecosystem among policymakers.

Additionally, the DEF is taking a stand against how some governments interpret laws in a way that could establish a troubling precedent, potentially discouraging software developers in various fields. They pointed out the risk that developers might face legal action for their open-source code if it is misused by other for illegal activities. This could place developers are risk of being held criminally responsible for actions they didn’t partake in, possibly affecting them years or even decades later.

CONTRIBUTION TO COIN CENTER [A NOTE FROM THE ORGANIZATION]

Founded in 2014, Coin Center 4 is an independent non-profit organization focused on the public policy issues facing cryptocurrency and decentralized computing technologies. Our mission is to defend the rights of individuals to build and use free and open cryptocurrency networks: the right to write and publish code – to read and to run it. The right to assemble into peer-to-peer networks. And the right to do all this privately. We do this by producing and publishing policy research, educating policymakers and the media about cryptocurrencies, advocating for sound public policy, and by engaging in litigation to defend digital civil liberties.

We are presently litigating two cases against the U.S. government. One is on Section 6050I crypto tax reporting, pushing back against expanded warrantless financial surveillance 1. The other is a civil case challenging the U.S. Treasury Department’s designation of immutable smart contracts 2. We argue that the Treasury does not have the statutory authority to add the Tornado Cash pool contracts to the list of sanctioned persons because immutable smart contracts are neither sanctioned persons themselves nor the property of any sanctioned person. We are fighting not only for the right of U.S. persons to continue using these tools but also seeking to set an important precedent: that the Treasury Department can’t simply identify decentralized apps and add them to the sanctions list without any evidence that the app is controlled by or enriches any sanctioned person.

We are also coordinating with Roman Storm’s legal defense on an amicus brief in his criminal defense. Our amicus focuses on accurately describing the operation of Tornado Cash and the role that developers play in creating decentralized apps like Tornado Cash. We argue that publishing decentralized app software, both to the blockchain and to web servers, is not the kind of activity that can give rise to prohibitions under U.S. sanctions laws because (a) U.S. sanctions laws exclude from prohibitions any transactions for information or information materials and (b) the U.S. Constitution’s First Amendment protects publishing software as “pure speech” warranting the strictest scrutiny from our courts.

Finally, we are continuously engaged in education and lobbying efforts in Congress and the various federal agencies in the U.S. to ensure that any changes to financial surveillance law does not impinge the free speech, privacy, and assembly rights of developers and users.

A grant to Coin Center will be used to support our ongoing work and to contribute to the legal defense of developers facing criminal prosecution.

CONCLUSIONS

In conclusion, the contributions mentioned above are not just a matter of protecting individual rights but a testament to our collective commitment to preserving the principles of innovation, decentralization, and individual sovereignty within the industry. By supporting this initiative, we affirm our dedication to upholding these principles and defending the right of developers to contribute to the deployment of permissionless open-source software without fear of reprisal or censorship.

Funding

As per the temperature check passed by the ArbitrumDAO on the 24th of April 2024, Coin Center and DeFi Education Fund will receive 500,000ARB each. 

Payment Terms

The funds will from this proposal will initially be sent to an account controlled by the Arbitrum Foundation 0x5bb0a919345aF084854BCDc9A6DDdE8b7FEe79aD , who will handle the transfers to Coin Center and DeFi Education Fund:

60% of the funds will be directly sent to Coin Center and DeFi Education Fund with the remaining 40% being vested in a linear manner with no cliff for a period of 4 months thereafter.