The United States Department of the Treasury has banned the use of the Tornado Cash token mixer by any US citizen.
Last Monday, August 8, the Office of Foreign Assets Control (OFAC), a surveillance agency in charge of preventing sanctions violations and part of the United States Department of the Treasury, banned the use of the token mixer, Tornado Cash, to all US citizens, by including it on the list of Specially Designated Nationals, a kind of “blacklist” that includes people, entities and cryptocurrency addresses.
In this way, any US person or entity has prohibited from interacting with Tornado Cash or any of the Ethereum e-wallet addresses linked to this protocol. Failure to do so may result in criminal sanctions.
This is the action with the greatest repercussion and impact that the Treasury Department has ever taken against a cryptocurrency protocol.
Why has the United States banned the use of Tornado Cash?
The main reason behind the prohibition of the use of the Tornado Cash combinator by the United States Treasury is the fact that it is the main tool used by the hacking group, Lazarus (linked to North Korea), to “clean up” the trail of cryptocurrencies that they have been stealing from various protocols.
After the bridge attack Ronin from Axie Infinity Network, on-chain analysis showed that several billion dollars in cryptocurrency from this attack (which managed to steal $625 million in March) flowed through Tornado Cash, thus obfuscating the origin of these funds.
According to data from the analysis company Nansen, Tornado Cash ETH deposits skyrocket following Ronin hack and the combinator continued to “launder” funds, even after the Treasury had sanctioned a digital wallet address that was allegedly linked to the North Korean hacking group Lazarus.
According to a senior US official, since its creation in 2019, Tornado Cash could have been responsible for the laundering of more than 7.000 billion dollars in cryptocurrencies.
According to Nansen's data, around 18% of the total amount of Ether that flowed through Tornado Cash during the last few months (June and July) comes from the Ronin hack.
But the problem is much bigger, since 4.600 ETH (worth about $15 million) flowed through Tornado Cash, which were stolen from Crypto.com, about $100 million in tokens that were the result of the Harmony bridge hack, as well as the $200 million stolen in Nomad Bridge.
Tornado Cash, a national security problem
As we have noted, the Tornado Cash ban is the harshest action the US government has taken against cryptocurrencies so far.
The toughness of the action is due to the fact that the Treasury considers that the mixer poses a serious risk to the National security, as it is being used by Lazarus, a group of hackers working for the North Korean government, a nation considered an enemy of the United States.
Furthermore, according to OFAC officials, this is not simple money laundering; but it is a money laundering used for the proliferation of weapons.
On the other hand, it is the first time that the US government sanctions a company whose activity is, basically, legal (although its activity, inherently, allows some illicit activity.)
Decentralization is Tornado Cash's greatest asset
US sanctions on Tornado Cash may have no real effect on the mixer, since it is open source and has a completely decentralized operation, with a DAO that is responsible for approving token combinations. Furthermore, the combinator is non-custodial, so the funds that are added always belong to the users, even when these are in a pool.
The protocol was designed through open source so that any developer could implement improvements and for it to be completely independent of any central authority, so users will continue to use it and the mixer will continue to operate despite the Treasury sanction.
However, the sanction has already caused the first problems for Tornado Cash, as other protocols have begun to put some Tornado Cash addresses on their blacklists, as is the case with USDC which has frozen over $75.000 worth of USDC from one of these addresses.
Concern in the crypto world about the actions of the US government
The Treasury's sanction on Tornado Cash worries a large part of the crypto community. Nansen analyst Andrew Thurman expresses his disbelief that the government can sanction “a piece of code.” Meanwhile, Hudson Jameson, former employee of the Ethereum Foundation, believes that governments are always behind technological innovations and that the sanction will have consequences for the development of security and privacy solutions.
On the other hand, the blockchain defense group, Coin Center, has raised concerns about the constitutionality of this sanction.
In this sense, the group points out that the US government is not prohibiting a non-US person from using a financial system, but is limiting access to a free software tool to all Americans.
At the same time, the way in which such a severe sanction has been applied is somewhat murky, since The nature of the blockchain prevents rejecting a transaction, so anyone could involuntarily break the law.
Someone is sending ETH from sanctioned addresses to celebrities
In fact, An anonymous user is sending small amounts of ETH (0.1 ETH in each transaction) that come from one of the addresses sanctioned by the US Treasury to some famous Americans.
Among the characters who have received one of these “poisoned transactions” are the CEO of Coinbase, Brian Armstrong, the television presenter Jimmy Fallon, the digital artist Beeple or the digital wallet address of the sports brand Puma.
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