Treasury Crackdown on Tornado Cash Punishes Honest Crypto Investors

A tornado is seen in a field in D’arcy, Saskatchewan, Canada, on June 15, 2021.

Neil Serfas | via Reuters

Treasury Department campaign in Tornado Cash it was meant to stop criminals. But a large number of ordinary crypto investors with honest intentions are now at risk.

“All Americans will need to exercise extreme caution when transacting with Tornado Cash,” he said. blackboard, head of legal and government affairs at research firm TRM Labs, in an interview. “Remember, sanctions are strict liability. The intent doesn’t matter.”

Some people use Tornado Cash as a legitimate way to protect their privacy in the still nascent crypto market. When a buyer pays for something with a crypto wallet, the recipient of the transfer has access to the buyer’s public crypto wallet, which displays account details and history.

Using a cryptocurrency mixing service like Tornado Cash masks those details by anonymizing the funds and hiding the identity of the buyer.

“Solutions are needed that can help you cover your tracks, even when you’re not doing anything illicit,” said Tom Robinson, chief scientist at blockchain analytics firm Elliptic.

By blacklisting Tornado Cash on Thursday, the Treasury Department said it was going after criminals, who have used the service to launder more than $7 billion in virtual currency since its launch in 2019.

While the goal of these Treasury Office of Foreign Assets Control (OFAC) sanctions is to prevent a state like North Korea from converting illicit crypto funds into more usable traditional currencies to finance weapons proliferation, the knock-on effect for everyday investors will be harsh, experts told CNBC.

In the past, OFAC has placed cryptocurrency wallet addresses in its “List of Specially Designated NationalsNow, Treasury is pointing in the direction of a smart contract that allows people to maintain their own personal privacy, according to Peter Van Valkenburgh, director of research at Coin Center, a nonprofit cryptocurrency think tank.

‘Point to a piece of software’

Elliptical he says there is also a gap between the Treasury data and his own calculations. Elliptic found that at least $1.5 billion in proceeds from crimes such as ransomware, hacking, and fraud have been laundered through Tornado Cash, and says that the government’s $7 billion figure refers to the full value of crypto assets held. have been sent via Tornado Cash.

The repercussions are already evident. Circle, the firm behind the US dollar-pegged stablecoin USDC, allegedly froze around $75,000 worth of USDC that was connected to Tornado, according to Dune, a cryptodata aggregator.

crypto exchange base of coins You’ll also have to stop your customers from sending funds to Tornado Cash, given Treasury’s new ground rules.

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Redbord says that cryptocurrency holders will eventually find a way to protect their identities.

“While today’s designation will affect US persons conducting legitimate transactions, they are likely to find other avenues,” he said.

But the problem for crypto users looking for an alternative mixing service is that no other has the scale of Tornado Cash, making it difficult to ensure your identity is protected.

“If no one is using them, then it’s very easy to get out of the mix and track them down,” Robinson said. “You need a lot of liquidity there to make it effective as a mixer, and it takes time to get that liquidity together and get that usage up and running,” Robinson said.

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