Tornado Cash Ban Sends Shivers Through the Crypto Community
The US Treasury’s Office of Foreign Assets Control (OFAC) decision to effectively ban the Ethereum (ETH) powered crypto blending service Tornado Cash has polarized the cryptocurrency community. Some believe it is a sign that more stringent regulatory action is on the way, while others believe OFAC’s decision to add Tornado Cash to its list of Specially Designated Nationals is a positive step.
The reason for the ban
Tornado Cash enables users to conduct private Ethereum transactions by pooling and mixing large volumes of transactions to prevent tracking. The site is popular among privacy-conscious cryptocurrency enthusiasts, but it is also used by hackers looking to launder their illicit profits.
Bad actors such as the North Korean-backed Lazarus Group are specifically mentioned as having a penchant for Tornado Cash. They were responsible for the $8 million Nomad Bridge hack last week. The Treasury Department claims that the ban in the United States is motivated by the need to combat hackers; however, security experts argue that this will not deter criminals from laundering their cryptocurrency. This will undoubtedly open the door to a slew of new Tornade Cash-style contracts. The federal government will then be forced to play a never-ending game of whack a mole with these new Tornado clones.
In my Alpha Chat, a friend inquired whether there were any legitimate use cases for Tornado Cash as a service. The best answer I could come up with was to avoid the wrath of oppressive government entities…however, doing so would almost certainly make using a service like Tornado Cash illegal under the said regime. Privacy advocates argue that the Tornado Cash ban is just another step toward more stringent crypto regulation. This move brings us closer to the surveillance state that decentralized Web 3 technology has been attempting to escape.
Many cryptocurrency users appear to have been alarmed by OFAC’s move and are concerned about the consequences. While the community appears to agree that bad actors are attempting to use services such as Tornado Cash to commit fraud.
Ragnar Lifthrasir, a Bitcoin (BTC) entrepreneur, wrote on Twitter that “a lot of people outside of Bitcoin” “care about privacy and have developed good privacy tools” — and suggested that BTC enthusiasts pay attention.
On Twitter, Jeff Coleman, co-founder of Counterfactual, proposed another legitimate use case for Tornado Cash:
“Wishing to donate to Ukraine is a great example of a valid need for financial privacy: even if your local government supports you wholeheartedly, you may not want the Russian government to know every detail of your actions.”
In an ironic twist, the Ethereum founder, Vitalik Buterin, who was born in Russia, responded: “I’ll identify myself as someone who has donated to this cause using TC.”
While we continue to process the fallout from this ban, chaos agents have taken matters into their own hands as a way to make a statement.
“Max chaos — TC’d ETH is being sent to big doxxed wallets like Shaq, Beeple, Randi Zuckerberg, Ben Horowitz, Brian Armstrong, and others.” -0xJim
If Ethereum exiting Tornado Cash is now illegal, it may be a problem that so much of it is ending up in celebrity wallets. Perhaps they all caught up with the times and began paying for their schedule 1 substances in cryptocurrency.
Rather, the operator of the Twitter account of secure mobile Bitcoin wallet provider Samourai Wallet responded by offering to let Semenov use the wallet’s “self-hosted GitLab to host your code if you like.”
Meanwhile, as of 9:46 UTC, Tornado Cash (TORN) was trading at $22, down 28% in a day and 13% in a week. Overall, it is down 8% month to month, 63% year to year, and 95% from its all-time high of February 2021.
Divided we fall
It appears that not everyone will be sad to see Tornado go. Tornado “dropped a house on it,” according to Mark Jeffrey, author of the Max Schnell series, and while “generally libertarian and pro-privacy,” the blender “is used primarily for bad things.”
He stated: “It’s usually tornado and gone after an exploit.” So, I’m conflicted, but I must support that.”
The passage of time
Whatever side of the crypto mixer debate you are on, most agree that OFAC’s move will likely be a watershed moment in regulation. The Blockchain Association’s head of policy, Jake Chervinsky, wrote:
“For years, the Treasury has carefully distinguished bad actors from the neutral tools and technology available to them (and everyone else on the planet).” The decision to sanction TornadoCash, a decentralized protocol, jeopardizes this prudent and well-balanced approach to cryptocurrency.”
And the ban’s consequences are already being felt. According to Dune data, Circle, the creator of stablecoin USD Coin (USDC), has frozen approximately $75,000 in Tornado tokens.