The United States Department of Treasury has banned all American citizens from using the Ethereum smart contract for Tornado.Cash. Citizens that do still attempt to use these tools could face criminal penalties. This appears to be the first time the Treasury has attempted to ban anyone from interacting with a protocol.
The announcement was made Monday morning by the Treasury. The release cited that Tornado.Cash has been used to launder more than $7 billion worth of virtual currency since it’s creation in 2019. They go on to note the roll the tool has played in helping the Democratic People’s Republic of Korea (DPRK) state-sponsored hacking group, Lazarus Group, avoid sanctions. It’s believed that Lazarus Group was behind the hack that drained $625 million from Ronin Network earlier this year.
What is Tornado.Cash?
Tornado Cash, along with a slew of other mixing services, allow users to conceal the history of their crypto assets through a number of techniques. This process is primarily done by mixing tokens that may have identity attached to them with other user’s tokens. The goal is to obfuscate the origin, destination and counterparties, by leaving no way to determine their origin. By doing this users help obfuscate the ownership history of everyone involved.
Tornado.Cash was built on the Ethereum blockchain in 2019. The main developer, Roman Semenov, has openly stated it was designed so that no third-party could control it. In fact the admin team smashed all their keys back in 2020 while moving control to stakeholders. Semenov told CoinDesk earlier this year that, “There is not much we can do in terms of helping investigations because the team doesn’t have much control over the protocol. The Tornado Cash team mostly does research and publishes the code to GitHub.”
This hasn’t been enough to alleviate the Treasury’s concerns. “Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks,” said Brian Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence. “Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.”
Bad Actors vs Tools
Coincenter, a leading cryptocurrency policy non-profit, was quick to point out that Tornado Cash is a tool, not a person. While past actions have been used for persons involved in terrorism, enemy states, or other state-sanctioned activities this is an action against a neutral tool.
This brings an interesting point to the discussion. Today’s action doesn’t actually stop the usage or limit the exposure of state sponsored hacks. Instead this limits law abiding citizens from using a tool to protect their own privacy while transacting online. This is all without actually doing anything to be able to stop the swapping of funds that the DPRK is benefiting from internationally.
What about Bitcoin?
While this news is about the mixing service on the Ethereum blockchain it leaves many to wonder, what about Bitcoin? The truth is that the Treasury has already went after services like Blender.io that used the Bitcoin network. The Treasury cited the same Ronin bridge hack that Tornado Cash has been linked to in their action against Blender.
The questions goes further though if they would attempt to stop citizens from using popular services like Wasabi or Samourai Wallet. These tools enable users to gain privacy over their Bitcoin by joining their unspent transaction outputs (UTXO) with other users. Earlier this year Wasabi Wallet announced they would censor certain Bitcoin transactions from entering their network. It’s not without reason to speculate that this was to avoid this same legal trouble.
Will we see future actions that attempt to limit Bitcoin holder’s privacy even more? It’s possible to try but similar to this action it will likely result in many, many lawsuits in the interim. While that’s happening the game of cat and mouse between privacy supporters and those wishing to expose people’s personal spending habits will continue to wage on.