What is Tornado Cash?

A virtual cryptocurrency mixer on the Ethereum blockchain, Tornado Cash was officially sanctioned by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) on August 8th, 2022. The platform works to facilitate anonymity, working as a black box that shuffles data to obfuscate the origin and destination of cryptocurrency assets. As a service designed to protect user privacy, users are typically exploited by illicit actors as a money laundering pipeline. This was the case in Tornado Cash, with an estimate of $7.6 billion laundered in assets.

What Happens to Tornado Cash?

All Tornado Cash blockchain addresses are now blacklisted by OFAC, making it illegal for any U.S. users to use Tornado Cash services. Tornado Cash isn’t the first cryptocurrency mixer to be sanctioned by OFAC, seeing that major hacking incidents have led mixers like Blender.io to sanctions. Blender.io was the first ever cryptocurrency mixer to be sanctioned by OFAC, utilized by North Korea state-sponsored hackers that led to the digital robbery of over $620 million from the online video game Axie Infinity. Since then, Lazarus have swapped to Tornado Cash, funneling $455 million from the Axie Infinity cryptocurrency heist.

The U.S. Treasury has since then sanctioned 38 associated Ethereum-based addresses, prohibiting any type of transaction from these wallets. Although mixers are considered money transmitters under the Bank Secrecy Act (BCA), Brian E. Nelson, the Under Secretary of the Treasury for Terrorism and Financial Intelligence, says that “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.” The Treasury considers virtual currency mixers a threat to U.S. national security.

What Does This Mean for Privacy in Crypto?

This act serves as a reminder that while crypto proponents are a facet of privacy, transparency is still embedded within the public blockchain ecosystem. Though bad actors are affected by the OFAC sanction, Americans who want a privacy tool through online transactions will ultimately face the effects of the sweep.

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