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US Bans Crypto Mixer Tornado Cash: An Attack on Privacy?

 


The US Treasury Department declared crypto mixer Tornado Cash illegal on August 8, 2022.


Persons in the US are now prohibited from using the Tornado Cash Mixer. Otherwise there is a risk of criminal prosecution. The US authority justified the measure with the massive increase in money laundering activities associated with the mixer. Tornado Cash is the second crypto blender to be banned in the United States after Blender.io.


What is a crypto mixer?

A crypto mixer is a tool that allows you to obfuscate the origin of your coins and protect your privacy. You can do this by sending cryptocurrencies (such as Bitcoin) to a mixer. The mixer then breaks the connection between transactions by first chunking your cryptocurrencies and then mixing them with other crypto transactions. You will then receive coins whose origin can only be traced back with difficulty or not at all.


Tornado Cash is built on the Ethereum blockchain and performs mixing via ERC-20 tokens and smart contracts. Tornado Cash emerged in 2019 and is one of the most popular crypto mixers out there. But be careful: Even if crypto mixers can protect your privacy, they can sometimes entail legal risks.

According to the US Treasury Department, Tornado Cash has laundered more than $7 billion in total to date.


For example, the North Korean Lazarus Group used Tornado Cash to launder the funds from the Ronin Bridge hack. This is the largest crypto hack to date , with the hackers stealing more than half a billion US dollars worth of crypto.


Additionally, Tornado Cash was used to launder more than $96 million from the June 24, 2022 Harmony Bridge heist and at least $7.8 million from the August 2, 2022 Nomad heist hack.


Crypto mixers remain legal in the US for now as it is software only. However, since money laundering is still illegal, the US Treasury Department wants to take further action. The US Treasury Department wrote in the press release:


"The Treasury Department will continue to act aggressively against mixers who launder virtual currencies for criminals and those who assist them in doing so."


The Ministry of Finance also imposed sanctions on the owners of the addresses connected to the service. Individuals in the US who hold a crypto wallet linked to Tornado Cash are to report to the US agency. The measures are intended to protect “US citizens” and “national security”.


GitHub and Circle cooperate with US authorities

In response to the sanctions , stablecoin provider USDC froze all funds associated with Tornado Cash and its associated smart contract. The software platform GitHub also reacted to the news and deleted the account of Roman Semenov, the developer of Tornado Cash. Semenov wrote:


“My @GitHub account has just been suspended. Is it now illegal to write open source code?”


Is it now illegal to write an open source code?

In addition, the Tornado Cash website went offline following the US Treasury Department's report.


Several members of the crypto community criticized the actions of the US Treasury. While the agency's measures against illegal activities may help, many see freedom and privacy at risk. For example, the founder and CEO of the cryptocurrency Gnosis, Martin Köppelmann, criticized the actions of the US Treasury Department.


According to the crypto enthusiast, there are enough reasons to want to hide the background of crypto transfers. This includes not only the protection of salary data. With the right laws, governments could monitor all wallet transactions in the future. Therefore, Köppelmann argued that the measures were not a "war on money laundering" but a "war on privacy".


Disclaimer

All information contained on our website has been researched to the best of our knowledge and belief. The journalistic contributions are for general information purposes only. Any action taken by the reader based on the information found on our website is entirely at their own risk.

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