Why Everyone's Talking About Tornado Cash
A deep dive into Tornado Cash and its use for money laundering purposes
gm frens 🤓
Today we’ll be talking about Tornado Cash. It might as well be one of the reasons why crypto had a slight crash those days.
Btw, we have also explained the issue on why NFTs might end up worthless if you are interested on reading about it.
First of all, let’s understand what Tornado Cash is. Tornado Cash is a smart contract which serves as a privacy tool, meaning that although blockchain is all about transparency, there might be times when you would want to transfer your ETH to different wallets in a way that no one can trace your or without your neighbor actually understanding how much is your net worth. There is no issue with that, you can’t really argue.
However, the issue with Tornado Cash is that it has been mostly used for money laundering services. At least that is what U.S. Department of Treasury thinks about it. Which is the reason why they sanctioned using Tornado Cash from U.S. persons.
Of course, this was not well accepted from the crypto enthusiasts and supporters. They think this is another try of centralizing crypto and not let it shine. Then we have those ones who are against crypto who are happy about the news.
Let’s dig more into it.
Office of Foreign Assets Control (OFAC) is a financial intelligence and enforcement agency of the U.S. Treasury Department. It administers and enforces economic and trade sanctions in support of U.S. national security and foreign policy objectives. Those are the ones who maintain the list of sanctioned countries and products/services. Tornado Cash is part of it too now.
Btw, if you want to read the details, here’s the link to it.
Some of their findings
Tornado Cash has been used to launder more than $7 billion since 2019
Lazarus Group from North Korea laundered $455 million worth of stolen crypto using Tornado Cash
What does it mean to get sanctioned?
OFAC adding Tornado Cash to the sanctions list means all U.S. persons are responsible to ensure that they do not have any sort of interaction with crypto transactions that were coming through this service.
OFAC treats violations as a serious threat to national security and foreign relations. As a result, criminal offenders face monetary fines—ranging from a few thousand dollars to several million—and prison time up to 30 years.
The funny part about it is that someone used Tornado Cash to send some ETH to big crypto celebs like Jimmy Fallon. It will be definitely hard to trace who is legit and who used the service for money laundering purposes.
Final thoughts
Tornado Cash was designed in a way that operates without centralized control, everything is managed from a DAO (Decentralized Autonomous Organization) and any sort of changes made to the protocol, it has to be approved from its users. Otherwise, if the developer of Tornado Cash was able to make changes as he seems fit, then it wouldn’t be really decentralized. They even did open source their code.
We can go back and forth on this, arguing that it might be a really important privacy tool but at the same time without putting any restrictions to it or have some sort of KYC (Know your customer) compliance procedure, it will be misused from criminals. Which brings a really important question that we can ask ourselves.
We are all interested about transacting using decentralized platforms with no control over them, but are we really ready to accept pros and cons of this? We have seen so many cases when crypto enthusiasts were arguing that regulators should not be part of it but when their funds got stolen, they would require the very same regulators to help them get their funds back!
Cheers!