Welcome back to Chain Reaction. Last week, we talked about a hack that gave new, ironic meaning to the word “trustless.” This week, we’ll get into one of the most polarizing aspects of crypto privacy.
If someone forwarded you this message, you can subscribe on TechCrunch’s newsletter page. Tornado Cash has been the talk of the town this week in crypto circles. The U.S. government’s Office of Foreign Asset Control (OFAC), a watchdog within the Treasury, leveled sanctions against the cryptocurrency mixer for its role in helping facilitate money laundering. North Korean-backed hackers, among others, have used the Tornado Cash platform to mask stolen crypto associated with some of the highest-profile hacks in web3 to date, including last week’s Nomad heist and the hack of play-to-earn video game Axie Infinity earlier this year.
But in imposing sanctions, OFAC was essentially using a sledgehammer to crack a nut. The agency’s official notice on the topic said that the platform had facilitated $7 billion worth of money laundering — which happens to be the total value of crypto assets that have been sent through Tornado Cash since it was created in 2019. Meanwhile, blockchain analytics provider Elliptic says only ~$1.5 billion of funds on Tornado are actually linked to crime, including ransomware attacks and fraud. The rest, Elliptic argues, could include “legitimate uses of mixers such as Tornado, such as to preserve financial privacy.”
So what are some of those legitimate uses? One example came from Ethereum co-founder Vitalik Buterin, who confessed on Twitter that he has used the service to send donations to aid Ukraine securely without the knowledge of the Russian government. The OFAC’s dictum does not differentiate between criminal and legitimate use cases, though. As a result, many law-abiding crypto users are likely suffering. Two major crypto infrastructure providers, Alchemy and Infura, blocked access to their API from any wallets that used Tornado Cash. Circle has reportedly frozen ~$75,000 worth of its USDC stablecoins that were connected to Tornado through a shared wallet, according to Dune Analytics data. Of course, internet pranksters got in on the fun, as is usually the case in the crypto world. Some have been sending crypto through Tornado Cash to known wallets held by celebrities such as Jimmy Fallon and Shaquille O’Neal in an attempt to troll them by getting their wallets banned under the sanction rules. OFAC’s heavy-handed action comes across as a bungled approach that raises more questions than it resolves when it comes to enforcement. Only time will tell how the latter plays out, but in the meantime, the crypto community is, understandably, pretty upset.
Source: This news is originally published by techcrunch