Government Ready to Hit Cryptos Where It Hurts The Hardest

The Fight Against Tornado Cash Is Only in the beginning. This past week, the United States government delivered a devastating blow to the entirety of the cryptocurrency industry.

Tornado Cash, a cryptocurrency mixer, was sanctioned by the Treasury Department, along with several crypto wallet addresses affiliated with the service. Because of this, the protocol and the smart contracts that go along with it have been blacklisted, which means it is now against the law for Americans to utilize them.

 

What is Tornado Mixer?

Tornado is a privacy solution that enables users to conceal the history of their payments as well as the future destination of those monies. In its most basic form, it conceals your cryptocurrency activities by turning the transparency of blockchain technology into an opaque box.

Treasury supported the step by denoting that the Lazarus Group, a group of hackers with connections to North Korea, had been utilizing the service to siphon accused of stealing crypto (most notably, $96 million that the group managed to steal from the latest Harmony bridge attack). This provided evidence that the Lazarus Group was using the facility to launder stolen crypto.

Since its inception in 2019, the Treasury Department stated that the business:

“has been utilized to facilitate the laundering of more than $7 billion worth of virtual currency.”

Are All the Transactions On Tornado From Illicit Source?

According to the findings of the crypto detective business Elliptic, however, not all money was technically considered dirty.

Even though around $7.6 billion worth of cryptocurrency has been moved through Tornado, only $1.5 billion of the monies were obtained unlawfully (and were therefore laundered), according to research published by Elliptic.

Another blockchain monitoring company called Chainalysis stated that roughly half of the $7.6 billion total came from DeFi.

The wider crypto community is uprooted after the privacy-focused business was recently placed on a blacklist.

The pro-cryptocurrency advocacy group Coin Center argued that the sanctions do not necessarily target a particular terrorist organization or the like, but rather they target all Americans “who may wish to use this automated tool to protect their privacy while transacting online” and that these individuals are “having their liberty curtailed without the benefit of any due process.”

Even Vitalik Buterin, one of Ethereum’s co-founders, has revealed that he contributed to Ukraine using the Tornado cryptocurrency before it was banned.

In addition to the alleged violations of privacy, the new punishments have also caused some fascinating ripple effects within DeFi, which we are only starting to see play out.

 

The Effect Is Already Visible in The Market

The decentralized derivatives exchange dYdX blocked addresses related to Tornado Cash almost immediately after they were discovered. Even further, the project stated that its “long-used compliance vendors” (which were most likely served by Chainalysis or Elliptic) had experienced a “sudden rush” of accounts that had been identified.

However, dYdX confessed that many of these accounts “had never directly engaged with Tornado Cash.”

It is a humiliating mistake and demonstrates just how compliant some cryptocurrency initiatives seek to be, even “decentralized” attempts.

There have been some creative reactions to the penalties imposed by the Treasury on the more crypto-anarchist side of the industry, which we have all learned to love (and despise).

Take, for instance, the distribution of trace amounts of Tornado’d ETH to a large number of well-known celebrities in a systematic manner.

Simply because someone delivered Jimmy Fallon this tainted ETH, it’s possible that he technically infringed sanctions regulations. This is the current state of affairs. Additionally, nobody can halt these transactions; they are genuinely unstoppable once they have begun.

And owing to the efforts taken by the Treasury, the world may soon understand how strong that may be, regardless of the sanctions that are in place.

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