The USA sanctions the biggest cryptocurrency mixer Tornado Cash

[05032-Mendicant-Bias]

Summary

Popular blockchains have a public ledger, meaning all transactions are public. E.g. you know when and for how much the first burger was bought for $APE at the BAYC themed store, and all transaction that person ever made with that address and all clients of the store.

To solve the privacy problem introduced by blockchain technology, Mixers were introduced, that use smart contracts to pool together money in a big pot, and people use smart contracts to take money out of the pot and in a new "clean" address. Fraudsters also have the privacy problem, and used the system as one of many steps in their money laundering. For a mixer to work, legitimate transactions must be much bigger than fraudolent transactions.

Following a long streak of high profle frauds and bankrupcies that affected pensions founds, the USA treasury has sanctioned Tornado Cash, a tool instrumental in laundering crypto procedings.

Legal entities are quickly moving to comply with the sanctions, including github removing the code repo, the website going down, and Torando Cash wallet addresses being blacklisted by Circle.

Update: first arrest linked to Tornado Cash USA Sanctions in the Netherlands

 

Quotes

Quote

WASHINGTON – Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned virtual currency mixer Tornado Cash, which has been used to launder more than $7 billion worth of virtual currency since its creation in 2019. This includes over $455 million stolen by the Lazarus Group, a Democratic People’s Republic of Korea (DPRK) state-sponsored hacking group that was sanctioned by the U.S. in 2019, in the largest known virtual currency heist to date. 
...
As a result of today’s action, all property and interests in property of the entity above, Tornado Cash, that is in the United States or in the possession or control of U.S. persons is blocked and must be reported to OFAC.

 

My thoughts

It was high time meaningful action was taken by regulators to protect consumers from blockchain, and this is likely just the beginning. Governments can no longer ignore crypto startups acting as de facto banks while offering none of the protections. I would like for blockchain tokens to have the same regulatory requirements as stocks (disclosures to prevent insider trading and wash trading. Taxation), for Exchanges to have the same regulatory requirement of banks (deposit insurance, KYC and AML) and brokers (regulate asset distribution in bankrupcy, book keeping and risk disclosure).

 

I'm a strong advocate for privacy, like end-to-end encryption for chat applications, and I'm against inserting government backdoors to software. I think the abuse of privacy tools from the blockchain industry to facilitate money laundering just makes the battle for privacy harder and makes censorship harder to fight. I welcome strong measures against the fraudster friendly tools like Tornado Cash. Especially because the privacy problem of Ethereum and Bitcoin are self inflicted, and the solution to the self inflicted problem is a tool adored by fraudsters...

 

In this forum I covered the news of the Axie Infinity hack a few months back. It was later discovered that the North Korean government and its Lazarus Group were behind the hack and used Tornado Cash as first step to launder the proceedings.

 

Sources

https://home.treasury.gov/news/press-releases/jy0916

https://www.fiod.nl/arrest-of-suspected-developer-of-tornado-cash/

[Needfuldoer]

Oh no!

 

Anyway.

 

24 minutes ago, 05032-Mendicant-Bias said:

I think the abuse of privacy tools from the blockchain industry to facilitate money laundering just makes the battle for privacy harder and makes censorship harder to fight.

"Mixers" are just money laundering schemes with a "plz don't abuse for crime " sign hanging on the door. That's literally the only way to have something resembling "privacy" on a blockchain that's designed around a public ledger that "a million eyes will oversee". They were either that naïve, or they expected the system to be abused but put up a fig leaf of plausible deniability as a CYA.

 

By design, there is no privacy in crypto.

[Levent]

Oh well I have my alternatives. I hope I am not on a list made my US government though.

[Kisai]

13 hours ago, Needfuldoer said:

Oh no!

 

Anyway.

 

"Mixers" are just money laundering schemes with a "plz don't abuse for crime " sign hanging on the door. That's literally the only way to have something resembling "privacy" on a blockchain that's designed around a public ledger that "a million eyes will oversee". They were either that naïve, or they expected the system to be abused but put up a fig leaf of plausible deniability as a CYA.

 

By design, there is no privacy in crypto.

yes and no.

 

What could have "solved" it and make it viable as simply a privacy solution would have been literately, limiting the amount that could go through it. eg no transaction over $100 USD equivalent, no repeat transactions from the same address within 24 hours. That keeps the potential abuse down, weapons / human trafficking / murder for hire, being difficult, and it mostly left to people trying to buy pot and porn off the record.

 

That said, except for the edge cases where drugs are legal-but-not-everywhere, mixer services are designed-by-intent for money laundering. There are rules imposed on credit card companies explicitly to prevent laundering (which is why you can't refund money to credit cards that you didn't spend.) The technical systems exist, but they don't want to use them because it puts additional legal responsibility on the bank. Imagine if you could just launder money by taking two credit cards to a POS, debit $10,000 from one and immediately put the $10,000-minus-a-an-obsfucation-cost on the other card. No merchant wants that liability.

 

[Arika]

19 hours ago, 05032-Mendicant-Bias said:

To solve the privacy problem introduced by multiple copies of a giant Excel spreadsheet technology,

19 hours ago, 05032-Mendicant-Bias said:

It was high time meaningful action was taken by regulators to protect consumers from multiple copies of a giant Excel spreadsheet, and this is likely just the beginning.

19 hours ago, Needfuldoer said:

"Mixers" are just money laundering schemes with a "plz don't abuse for crime " sign hanging on the door. That's literally the only way to have something resembling "privacy" on a multiple copies of a giant Excel spreadsheet that's designed around a public ledger that "a million eyes will oversee"

 

i forgot i created this substitution. it makes me extremely happy

 

[jagdtigger]

Good lets hope the follow it up and eventually destroy the pyramid scheme called crypto...

[Beskamir]

On 8/9/2022 at 3:50 AM, Needfuldoer said:

Oh no!

 

Anyway.

 

"Mixers" are just money laundering schemes with a "plz don't abuse for crime " sign hanging on the door. That's literally the only way to have something resembling "privacy" on a blockchain that's designed around a public ledger that "a million eyes will oversee". They were either that naïve, or they expected the system to be abused but put up a fig leaf of plausible deniability as a CYA.

 

By design, there is no privacy in crypto.

I disagree. Privacy is important and does not necessitate criminal activity. Obviously criminals care about privacy and they do the rest of us a great service by constantly provoking authorities into penetration testing the various privacy focused tools that the rest of us benefit from having access to.

[Needfuldoer]

2 hours ago, Beskamir said:

Privacy is important

Never said it wasn't.

 

2 hours ago, Beskamir said:

and does not necessitate criminal activity

Never said it did.

 

"Here's a platform to obfuscate and anonymize all the money you want" does. If they had no mechanism in place to prevent the system from being abused by criminals as a money laundromat, either they had far too much trust in others or they knew exactly what they were building.

[05032-Mendicant-Bias]

48 minutes ago, Beskamir said:

I disagree. Privacy is important and does not necessitate criminal activity

My problem with tornado cash, is that BTC and ETH were built to not have any privacy at all.

If you want privacy, just use real money, no need to use tool  perfect for North Korea's sanction avoidance to be private on a public database... That's why I think Tornado Cash hurts the fight for privacy overall.

[Commodus]

The only way a mixer can really stay above-board is if it's absolutely ruthless about cracking down on suspicious activity... and even then, there's only so much it can do.