This week the US government shook the entire crypto world.
The Treasury Department approved crypto mixer Tornado Cash as well as several crypto wallet addresses associated with the service. This means that the protocol and its associated smart contracts are now blacklisted, making it illegal for Americans to use them.
Tornado is a privacy tool that lets users confuse where their funds are and where they are going. Basically, it turns the transparency of blockchain technology into a black box, hiding your crypto activity.
The Treasury supported the move by indicating that the Lazarus Group, a hacker group with North Korea, was using the service to launder stolen crypto (most notably, the $96 million conglomerate from the recent Harmony Bridge attack). was using.
In total, the Treasury said the service has been used “to launder more than $7 billion in virtual currency since its creation in 2019.” all that money wasn’t technically LaunderingHowever, according to crypto explorer company Elliptic.
Roughly $7.6 Billion Worth of Crypto Actually Is passed through whirlwind, but only $1.5 billion of those funds were obtained illegally (and, thus, laundry), Elliptic said in a report.
Another blockchain monitoring firm Chainalysis also reported that nearly half of the $7.6 billion amount came from DeFi (none of which, according to Chainalysis, is essentially illegal).
The privacy-focused service has now been blacklisted, with the wider crypto community up in arms.
Crypto advocacy group Coin Center argued that the sanctions do not target a specific terrorist group or the like, “but rather it is all Americans who want to use this automated tool to protect their privacy when transacting online who are doing so.” their freedom has been curtailed without due process.”
Even Ethereum co-founder Vitalik Buterin admitted that he used Tornado (before it was blacklisted) to donate to Ukraine.
In addition to the alleged privacy breaches, the new restrictions have also had some interesting ripple effects within DeFi which we are just starting to play out.
Decentralized derivatives exchange dYdX almost immediately banned addresses associated with Tornado Cash. The project even said that its “long-used compliance vendor” (possibly serviced by Chainalysis or Elliptic) erupted with a “sudden influx” of flagged accounts.
But many of these accounts, dYdX acknowledges, “were never directly linked to Tornado Cash.”
This is a shameful mistake, and it also shows how compliant some crypto projects aim to be—even “decentralized” efforts.
Meanwhile, on the more crypto-anarchist side of the industry that we all love (and hate), there have been some simple reactions to Treasury’s sanctions.
Take, for example, a number of high-profile celebrities ranging from small amounts of serial dust to Tornado ETH.
As it stands, Jimmy Fallon may have technically broken the ban laws simply because someone sent him this corrupted ETH. No one can block these transactions; They are truly invincible.
And thanks to the actions of the Treasury, the world may soon learn just how powerful this can be—sanctions be damned.
Led by this essay on Decrypting DeFi is our DeFi newsletter. Members of our email can read the essay first before visiting the site. Subscribe here.