The famous cryptocurrency mixer Tornado Cash was sanctioned by the U.S. Department of Treasury on Monday after it was tagged “a threat to U.S. national security” by the department.
Tornado Cash is a crypto asset mixer designed to hide trails of funds by combining a user’s tokens with a pool of other users’ assets on the network. In addition, it improves transaction privacy by breaking the on-chain link between source and destination addresses.
Although most people use Tornado Cash as an added layer to their privacy, the government claims it has been used to foster illegal money transfers, including “facilitation of heists, ransomware schemes, fraud, and other cybercrimes.”
Has Tornado aided in money laundering?
Tornado has been at the centre of several well-known cryptocurrency heists this year. The two biggest ones are the $615 million hack from the Ronin Bridge and the $100 million hack from Harmony bridge. Both hacks have been traced back to Lazarus Group, a North-Korea sponsored hacking group.
The all-time money heist through Tornado Cash stands at $1.5 billion, according to Blockchain analytics firm, Elliptic found. Still, the U.S. government believes this figure is worth almost five times the figure quoted by Elliptic ($7 billion). In reality, the figure quoted by the U.S. government is the total amount of crypto sent through Tornado Cash.
Coincenter: the restriction was not well-thought-out
According to Coin Center, the OFAC SDN list primarily aims to identify people involved in terrorism or other threatening causes and bar them from receiving anything from the US financial system.
The issue with banning Tornado Cash is that it is not targeted at a person but a software. The owners could be AWOL, and the system will keep running via its smart contract. This ban on Tornado Cash has nothing to curb its owners or the people using it for malicious deeds. Instead, it bans a tool that is “neutral in character and can be put to good and bad uses.”
Instead of targeting a specific bad actor, the ban targets all Americans using Tornado cash to protect their personal privacy when conducting online business. Even worse, according to Coin Center, “because of the nature of blockchain transactions, an American who is sent money through the Tornado cash address is not even able to reject the transaction, and yet may be, at that moment, technically in violation of OFAC rules.”
It is believed that “this particular usage of OFAC raises heightened constitutional concerns because it is, again, not a ban on one non-US person’s ability to use the financial system; it is instead a ban on effectively every American’s ability to use a particular open source software tool.”
Circle Blacklists some wallets linked to Tornado Cash
Ethereum blockchain explorer data shows that Circle has blacklisted some Tornado cash wallets containing around 75,000 USDC. Believed to be amongst these addresses is Tornado Cash’s USDC pool, putting a hold on users who may want to withdraw their funds.
Circle just frozen 75,000 USDC belonging to unsuspecting Tornado users, as well as 149 USDC donated to the project. pic.twitter.com/GBS41FtZvB
— banteg (@bantg) August 8, 2022
Circle failed to respond on the extent of the blacklisting at the time of this writing, but it confirmed that it followed the prerogatives of the Office of Foreign Asset Control.
“Circle is a regulated company and conforms to sanctions compliance requirements,” said the firm in an email. “We have addressed the sanctions and blocked the addresses associated with OFAC’s Tornado Cash designation.”
Tornado’s website is currently unresponsive and the Github is down.
