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Code is not speech: ‘Wild theories’ won’t protect DeFi developer Alexey Pertsev

Code is not speech: ‘Wild theories’ won’t protect DeFi developer Alexey Pertsev
Torando Cash developer Alexey Pertsev, legal scholar Kyle Langvardt, Securities and Exchange Commission Chair Gary Gensler.
  • Crypto’s supporters often argue that code is speech and therefore protected under the First Amendment.
  • A new legal paper argues, however, that “code is speech” doesn’t actually hold up in court.
  • Instead, the concept is being mobilised to protect crypto businesses from regulation, the paper says.

“Code is speech.”

That phrase has become a rallying call among crypto evangelists and privacy advocates, suggesting that software is protected under free speech laws. Some crypto advocates have latched on strongly to this.

The problem is that the “code is speech” argument has no legal merit in crypto cases, a US legal scholar argues in a paper that will soon be published in the Yale Journal of Law and Technology.

These “wild theories” are “badly out of step with First Amendment case law and probably worthless in court,” Kyle Langvardt, assistant professor of law at the University of Nebraska College of Law, writes.

He inked the paper as the argument has come to the fore in the Netherlands where Tornado Cash developer Alexey Pertsev is under house arrest, awaiting a hearing next week.

However, the case is bigger than what may transpire in a Dutch courtroom — it has international ramifications. Days before Pertsev was arrested, the US Treasury Department accused the crypto mixer of facilitating the laundering of billions of dollars.

NOW READ: How hackers turn stolen crypto into cash

Privacy advocates rushed to Tornado Cash’s defence. Among their arguments is a familiar dictum — “code is speech.” The argument invokes the First Amendment, and it holds that code is a form of expression and therefore protected by the US Constitution.

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Activists and lawyers say it’s an argument with a robust US case law backing, and it’s cropping up increasingly in the crypto industry’s challenges to regulators.

NOW READ: Litigator who challenged Operation Choke Point rallies crypto to fight ‘illegal’ regulatory crackdown

However, Langvardt rejected that notion in his paper. He told DL News that these arguments persist — in the media, in whitepapers, and litigation — not because they are good arguments but because they serve the purposes of the crypto industry: to prop up an exceptionalist narrative that is attractive to investors and seems to exempt crypto from regulation.

“As I spent more time on this paper, I started worrying that these arguments were just too trivial for me to think about, they seemed so weak,” Langvardt said.

“And then it occurred to me that these arguments were coming mostly from think tanks or the industry, not from legal scholars. And it seems to me that it’s purely marketing. A lot of the arguments they put forward align with a lot of non-legal crypto hype.”

Ultimately, these arguments could help firms sidestep regulation and even debase the First Amendment, Langvardt said.

As I spent more time on this paper, I started worrying that these arguments were just too trivial for me to think about, they seemed so weak.

Last-ditch effort

Langvardt’s paper says crypto lawyers leverage the First Amendment as the industry’s other tactics to evade regulation have largely failed.

One tactic blockchain companies use to sidestep regulation is to produce seemingly novel technologies, Langvardt’s paper says. Then providers can say that crypto is different to other kinds of instruments, so it should not be subject to the same rules.

This argument is not standing up against regulators like Gary Gensler, however. The Securities and Exchange Commission chair insists that most crypto assets are securities and fall under existing law. Court challenges to SEC enforcement actions have so far failed to hand any major decisive victories to the crypto industry.

NOW READ: ‘Non-compliance is their business model’: Gensler slams crypto businesses in House committee hearing

And so, Langvardt argues, the industry picks another weapon — constitutional arguments, like code is speech.

The precedent

There is a legal case to be made for “code is speech”, at least, in the realm of encryption technologies. A landmark case in the early 1990s, Bernstein versus the United States, set a precedent when a California court ruled that government controls on encryption violated the First Amendment.

The ruling led to regulatory changes that made it easier to publish encryption software online without the approval of the US government.

With the Bernstein case in mind, crypto industry supporters bring up “code is speech” to defend crypto.

One recent example is activists rushing to the defence of Pertsev. The digital rights group the Electronic Frontier Foundation, which was instrumental in winning the Bernstein case, filed an amicus brief saying that the US sanctions against the mixer violate its First Amendment rights.

Crypto industry participants have also brought up “code is speech” in letters responding to a proposal from the SEC that seeks to regulate decentralised exchanges.

The SEC recently reopened the proposal after a storm of protest from DeFi players, who see it as an attempted shadow ban of their industry.

NOW READ: SEC reopens dark pools rule proposal that would regulate DeFi

Cold water

But Langvardt’s paper aims to pour cold water on these theories. “Code is speech” simply is not borne out by case law, he says.

Besides Bernstein, in only one other case has the “code is speech” theory successfully swayed a judge, and “both of them were decided over 20 years ago on unusual facts,” he writes.

“Since 2000, every single judicial opinion to engage with the code is speech doctrine beyond the pleadings — nine of them, in several jurisdictions — has ruled for the government. And the Supreme Court has never endorsed code as speech, despite occasional misconceptions on this point.”

Langvardt acknowledged that the argument has an emotional appeal for developers.

“If I were a coder and I was passionate about it, I would feel like I was expressing myself when I worked on my code,” he said. “It’s natural for somebody who works in software to be attracted to this First Amendment idea.

“But I think there’s a category mistake there, because what they are talking about is more like the right to pursue a calling. And that’s a different thing from speech in the legal sense.”

Shell game

So why make these arguments if they are weak? Langvardt says in the paper that they serve other purposes: to win over investors, and to trick courts into thinking there is a profound First Amendment issue at stake.

“They help to drive a predatory marketing strategy that attracts retail investors with appeals to individual liberty and resistance to ‘financial censorship’,” the paper says.

Monthly raises in crypto.

But this “opportunism interferes with public efforts to protect investors, collect taxes and fight financial crime — and ultimately, it debases the First Amendment itself,” it continues.

But, he told DL News, policymakers will realise that it’s a mistake to try too hard to follow the “elaborate shell game” of ever-differentiating crypto products.

“There are always going to be more bells and whistles that distinguish this crypto asset from that crypto asset. And it’s always going to get more and more complicated, and the regulator’s never going to get caught up on all of the details. But the people are still the same,” he said.

“You realise, Well, that’s kind of what a shell game looks like. The ball keeps moving around to different places, but it’s the same game. And as long as you don’t get too focused on the ball, you should know how to approach the game intelligently.”

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