The US Blacklisted Tornado Cash, OFAC Figures May Be Inaccurate

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Bitcoin

The United States sanctioned the infamous coin mixing service, Tornado Cash (website is currently offline). In May the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) took actions against Blender.

Blender was used by the Democratic People’s Republic of Korea (DPRK) for money laundering according to the United States. Lazarus Group, which is linked to the DPRK hacked Axie Infinity (around $600M were stolen) laundered approximately $20M via Blender.

Over $7 billion were laundered on Tornado Cash since 2019 according to the OFAC. Cryptocurrencies that were hacked from Harmony Bridge and Nomad were laundered on Tornado Cash.

source: dune

Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson said: “Today, Treasury is sanctioning Tornado Cash, a virtual currency mixer that launders the proceeds of cybercrimes, including those committed against victims in the United States.

“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.

“Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.”

In May 2022, Tornado Cash banned wallets that the OFAC inked to Lazarus. However, the addresses were only banned from the website and not from the smart contracts that cannot be updated.

The OFAC was displeased with Tornado Cash’s inability to blacklist addresses from its contracts, which lead to the ban of its website and smart contracts.

Circle Freezes USDC in Sanctioned Addresses

The sanctions mean US crypto investors can no longer use Tornado Cash. 38 ETH addresses and 6 USDC addresses were added to OFAC’s Specially Designated Nationals (SDN) list and may be viewed at the US Department of Treasuty website.

GitHub took action to comply with the new US sanctions. Tornado Cash developers were suspended from the platform, including Roman Semenov and Alexey Pertsev.

source: Twitter

Circle, the Founder of USDC stablecoin complied with the sanctions and blacklisted the addresses on the SDN list. Early reports suggest that a notch over $70,000 were frozen by Circle.

source: Twitter

Both Infura and Alchemy blocked RPC calls to Tornado Cash in compliance with the recent sanction. At the time of this writing, however, users may still connect to Tornado Cash using CLI.

The Crypto Industry Reacts to the Sanctions

Several figures in the crypto industry expressed their concerns about the sanctions. Coin Center, a non-profit research and advocacy center that focuses on policy issues facing cryptocurrency and decentralized technologies is surprised by the sanctions.

The OFAC SDN list is composed of individuals that engaged in terrorism, enemy states or other sanctioned activities. Being on the list means they cannot benefit from the US financial system.

“A smart contract is a robot, not a person. It is software that resides on the Ethereum blockchain.”

In other words, if a US citizen receives a transaction via a Tornado Cash address he cannot reject it, which could be a violation of OFAC rules. Muneeb Ali, the Co-Founder of Stacks agrees that OFAC should be against people, not technology.

Shapeshift CEO and Founder, Erik Voorhees tweeted to the MakerDAO community to unwind USDC collaterals and to move to more ‘censorship resistant’ stablecoins.

Jake Chervinsky, an executive at Blockchain Association wrote the following in reaction to the US sanctions:

“For years, the Treasury has carefully distinguished bad actors from the neutral tools, and technology that they (plus everyone else in the world) are able to use.

“The decision to sanction TornadoCash, a decentralized protocol, threatens that smart and balanced approach to crypto.”

As the protocol is decentralized as opposed to centralized, it cannot be halted. There are growing calls for a decentralized stablecoin as opposed to USDC.

OFAC Figures May Be Inaccurate

According to Elliptic, only $1.54 billion were laundered via Tornado Cash. The total sum that has been transacted through the mixer is nudging above $7 billion.

source: elliptic

Honest US investors that have conducted transactions via Tornado Cash may face difficulties.

Due to its decentralization, Tornado Cash can be forked to create similar mixers. Liquidity, however, will be required, which may take some time to gather.

Will It Stop Money Laundering?

While it is true that North Korean hackers have used Tornado Cash for laundering, the alternative is bridging, which has been done in the past.

The bad actor can bridge ETH, for example, to AVAX, which cannot be traced unless a significant amount is bridged in a single transaction. There will always be alternatives to Tornado Cash.

Aztech is developing a privacy layer for web3 projects. Dubbed ‘VPN’ for ether transactions, a decentralized private smart contract platform is on its roadmap.

Aztech is comparing current ETH wallets to credit card transactions, which are publicly available to all. The company is working on bringing privacy to DeFi.

More protocols may accelerate their focus on privacy as a result of the sanctions.

The United States sanctioned the infamous coin mixing service, Tornado Cash (website is currently offline). In May the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) took actions against Blender.

Blender was used by the Democratic People’s Republic of Korea (DPRK) for money laundering according to the United States. Lazarus Group, which is linked to the DPRK hacked Axie Infinity (around $600M were stolen) laundered approximately $20M via Blender.

Over $7 billion were laundered on Tornado Cash since 2019 according to the OFAC. Cryptocurrencies that were hacked from Harmony Bridge and Nomad were laundered on Tornado Cash.

source: dune

Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson said: “Today, Treasury is sanctioning Tornado Cash, a virtual currency mixer that launders the proceeds of cybercrimes, including those committed against victims in the United States.

“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.

“Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.”

In May 2022, Tornado Cash banned wallets that the OFAC inked to Lazarus. However, the addresses were only banned from the website and not from the smart contracts that cannot be updated.

The OFAC was displeased with Tornado Cash’s inability to blacklist addresses from its contracts, which lead to the ban of its website and smart contracts.

Circle Freezes USDC in Sanctioned Addresses

The sanctions mean US crypto investors can no longer use Tornado Cash. 38 ETH addresses and 6 USDC addresses were added to OFAC’s Specially Designated Nationals (SDN) list and may be viewed at the US Department of Treasuty website.

GitHub took action to comply with the new US sanctions. Tornado Cash developers were suspended from the platform, including Roman Semenov and Alexey Pertsev.

source: Twitter

Circle, the Founder of USDC stablecoin complied with the sanctions and blacklisted the addresses on the SDN list. Early reports suggest that a notch over $70,000 were frozen by Circle.

source: Twitter

Both Infura and Alchemy blocked RPC calls to Tornado Cash in compliance with the recent sanction. At the time of this writing, however, users may still connect to Tornado Cash using CLI.

The Crypto Industry Reacts to the Sanctions

Several figures in the crypto industry expressed their concerns about the sanctions. Coin Center, a non-profit research and advocacy center that focuses on policy issues facing cryptocurrency and decentralized technologies is surprised by the sanctions.

The OFAC SDN list is composed of individuals that engaged in terrorism, enemy states or other sanctioned activities. Being on the list means they cannot benefit from the US financial system.

“A smart contract is a robot, not a person. It is software that resides on the Ethereum blockchain.”

In other words, if a US citizen receives a transaction via a Tornado Cash address he cannot reject it, which could be a violation of OFAC rules. Muneeb Ali, the Co-Founder of Stacks agrees that OFAC should be against people, not technology.

Shapeshift CEO and Founder, Erik Voorhees tweeted to the MakerDAO community to unwind USDC collaterals and to move to more ‘censorship resistant’ stablecoins.

Jake Chervinsky, an executive at Blockchain Association wrote the following in reaction to the US sanctions:

“For years, the Treasury has carefully distinguished bad actors from the neutral tools, and technology that they (plus everyone else in the world) are able to use.

“The decision to sanction TornadoCash, a decentralized protocol, threatens that smart and balanced approach to crypto.”

As the protocol is decentralized as opposed to centralized, it cannot be halted. There are growing calls for a decentralized stablecoin as opposed to USDC.

OFAC Figures May Be Inaccurate

According to Elliptic, only $1.54 billion were laundered via Tornado Cash. The total sum that has been transacted through the mixer is nudging above $7 billion.

source: elliptic

Honest US investors that have conducted transactions via Tornado Cash may face difficulties.

Due to its decentralization, Tornado Cash can be forked to create similar mixers. Liquidity, however, will be required, which may take some time to gather.

Will It Stop Money Laundering?

While it is true that North Korean hackers have used Tornado Cash for laundering, the alternative is bridging, which has been done in the past.

The bad actor can bridge ETH, for example, to AVAX, which cannot be traced unless a significant amount is bridged in a single transaction. There will always be alternatives to Tornado Cash.

Aztech is developing a privacy layer for web3 projects. Dubbed ‘VPN’ for ether transactions, a decentralized private smart contract platform is on its roadmap.

Aztech is comparing current ETH wallets to credit card transactions, which are publicly available to all. The company is working on bringing privacy to DeFi.

More protocols may accelerate their focus on privacy as a result of the sanctions.

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