Coin Center warns against adjusting smart contracts to avoid litigation: Multisigs and governance votes could both be blamed

Cointelegraph reported that Peter Van Valkenburgh, Research Director at the cryptocurrency advocacy group Coin Center, emphasized at a Bitcoin policy summit that from a regulatory perspective, the immutability of smart contracts is crucial in avoiding legal liability. Adjusting contracts through multi-signature mechanisms or governance voting could potentially lead to legal consequences.

Coin Center: Avoid Adjusting Smart Contracts to Avoid Litigation

Van Valkenburgh pointed out at yesterday's summit that immutability of smart contracts is crucial for developers building DApps on L2, enabling them to avoid legal troubles:

In the blockchain world, developers face a very difficult question: is everyone involved in the product design responsible for any activities of that smart contract? I think these issues will only create regulatory difficulties.

He believes that developers are less likely to be blamed for fraudulent activities on the platform as long as they ensure that the smart contract they develop will never be altered:

Enabling developers to open, close, or modify smart contracts through multi-signature mechanisms or governance voting may also make developers more accountable in case of criminal activities.

He also added, "Not open-sourcing smart contracts may also lead to legal issues."

Support from Uniswap Case

In addition, Van Valkenburgh mentioned the Uniswap lawsuit that was dismissed in August last year, stating that the ruling supported his viewpoint.

The court ruled at the time that developers designing the code were not responsible for third-party abuses on the platform:

Although Uniswap operates as a "for-profit business," it does not have a centralized ownership structure, and the smart contract itself is legally enforceable, with responsibility falling on the sellers of fraudulent tokens.

US Judge Dismisses Uniswap Lawsuit: Ether is a Commodity, Platform Not Liable for Fraudulent Sellers

However, immutable smart contracts may still pose potential issues, including lack of scalability and technical integrations or the inability to stop losses promptly in case of an attack.

Inconsistent Regulatory Standards

However, a recent case involving Tornado Cash co-founder Roman Storm being sued by the US Department of Justice (DOJ) suggests that open-source and immutable smart contracts do not guarantee developers immunity from prosecution.

Tornado Developer Roman Storm Claims "Coding is Free," Requests DOJ to Drop Charges

In response, Van Valkenburgh has submitted a friend-of-the-court brief in the case and believes that once Storm's case concludes, regulatory standards will become clearer.

Today, Coin Center filed an amicus brief in Roman Storm's criminal case. The government has wrongly charged the Tornado Cash developers with criminal conspiracy and we are here to help set the record straight and defend First Amendment rights to publish software.

Our brief… pic.twitter.com/zSbtKsI8Yd

— Peter Van Valkenburgh (@valkenburgh) April 5, 2024

So far, while platforms are not held responsible for selling fraudulent tokens to users, they can be legally prosecuted when users are involved in criminal money laundering activities, indicating a divergence in US court standards for crypto-related crimes.

At this point, another mixing protocol, Bitcoin Fog, serves as a warning example for developers.

Bitcoin Fog Mixing Protocol Founder Convicted of Money Laundering, Will Tornado Cash Case be Handled Similarly?