What the Tornado Cash case tells us about the future of money
The operation against Tornado Cash by the US authorities and the subsequent arrest in the Netherlands of one of the developers of the open source protocol used by the cryptocurrency platform exposes the problems related to using a technology before it has been fully regulated, and which tends to take place initially in high-risk environments.
What is Tornado Cash? Technically, it is a cryptocurrency tumbler, a service that introduces anonymity into transactions taking place on the Ethereum Virtual Machine (EVM), where originally all transactions are public by default. It does this mixing potentially identifiable funds with others, so as to obscure their sources. Simply put, you create the service, but avoid asking its users to identify themselves following Know your Customer (KYC) rules, and from there, you bundle source funds from multiple entries over a large and random period of time, and then return them to the destination addresses. As all funds are pooled and then distributed at random times, the process of tracking exact currencies becomes extremely complex.
The tool aims to develop systems that allow us to maintain the privacy associated with economic transactions, equivalent to what we do when we decide to use cash, but unsurprisingly, it has been used extensively by criminals to redirect large-scale flows…