Coinbase will not censor any transactions on Ethereum after the Merge; Chief legal officer says

• Coinbase plans not to censor any transactions on the Ethereum network that involve sanctions services.
• There are concerns that the crypto company may find itself under the OFAC radar if it verifies transactions that are related to Tornado Cash or other sanctioned platforms.

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As the crypto community awaits a major event- The Ethereum Merge, Coinbase Chief Legal Officer Paul Grewal has made certain revelations about the upgrade. He noted that Coinbase would not be censoring any transaction on the Ethereum network, even if such transactions involve sanctioned tools such as Tornado Cash. The Treasury Department’s Office of Foreign Asset Control (OFAC) sanctioned the crypto mixer in August. The OFAC claimed that criminals used the platform for money laundering over many years. 

Coinbase appears to have an important role to play after the success of the Ethereum Merge. The purpose of the Merge is to change Ethereum from a proof-of-work consensus mechanism to a proof-of-stake. Meanwhile, proof-of-stake relies on validators to validate transactions and add them to the blockchain. As validators like Coinbase keep the system running, the crypto company will be one of the biggest validators after the Ethereum Merge.

While validators take some amount of the token, the stake will be slashed if validators turn out to be dishonest. According to an analyst at JP Morgan, Kenneth Worthington, the crypto exchange will be a major beneficiary of the upgrade. Worthington also stated an estimate of a 15 percent share in Ethereum assets. 

Could OFAC target Coinbase if it validates Ethereum transactions that involve Tornado Cash?

A CNBC trader Ran Neuner said Coinbase might find itself under the radar of the OFAC if it verifies transactions related to Tornado Cash. And if the exchange fails to verify the transactions, that could render Ethereum worthless. Grewal has responded to concerns on Twitter about the implication of Coinbase or any other validator validating transactions that include Tornado or other sanctioned services. According to the legal officer, the law allows Coinbase to not censor any transaction. He explained that nothing mandates miners, stakers, or other persons “at the base lawyer” to track or censor transactions. Grewal added:

The law says you can’t “transact” with sanctioned individuals and must “block” property that under the “possession” or “control” of US persons. But that’s just not how blocks get produced at the base layer. No one is exercising any of possession or control of anything– under any plain meaning of those terms. And all that any miner or anybody else is “facilitating” is the recording of transactions.

The legal officer mentioned that the crypto community should not let fear cloud the rudiments of law. “Words in law must mean what they said, not what anyone wants them to say,” Grewal stated. 

Concerning the Merge, Ethereum creator Vitalik Buterin has reminded his followers that the change will happen around the 13th and 15th of September. He mentioned that the Bellatrix hard fork was happening to prepare the chain for the Merge.