The Treasury Department’s crackdown on Tornado Cash was meant to deter criminals. But a large number of ordinary Crypto criminals investors with honest intentions are now at risk.
“All Americans need to be very careful when transacting with Tornado Cash,” Ari Radbord, head of legal and government affairs at research firm TRM Labs, said in an interview. “Remember, sanctions are strict liability. Intent doesn’t matter.”
Some people use TornadoCash as a legitimate way to protect their privacy in the still nascent crypto market. When a buyer pays for something using a crypto wallet, the recipient of the transfer has access to the buyer’s public crypto wallet, which displays account details and history.
Using a cryptocurrency mixing service like TornadoCash hides these details by anonymizing the funds and hiding the identity of the buyer
“There’s a need for solutions that can help you cover your tracks, even when you’re not doing anything illegal,” said Tom Robinson, chief scientist at blockchain analytics firm Elliptic.
In blacklisting TornadoCash on Thursday, the Treasury Department said it was going after criminals who have used the service to launder more than $7 billion worth of virtual currency since its launch in 2019. .
While these Treasury Office of Foreign Assets Control (OFAC) sanctions are intended to prevent a state like North Korea from converting illicit Crypto criminals funds into more usable traditional currencies to finance weapons proliferation, day-to-day This will have a severe impact on investors. Experts told CNBC.
In the past, OFAC has placed cryptocurrency wallet addresses on its “Specially Designated Nationals List.” Now, the Treasury is pointing in the direction of a smart contract that allows people to maintain their personal privacy, according to Peter Van Valkenburgh, director of research at CoinCenter, a nonprofit cryptocurrency think tank.
‘Target A Piece Of Software’
“It’s fundamentally different, because you’re no longer targeting a specific person who is a known terrorist or a member of a hostile state,” Van Valkenburg said. “You’re targeting a piece of software that exists on a peer-to-peer network over the Internet.”
According to Van Valkenburgh, OFAC is the nuclear option when it comes to financial controls. It is commonly used to identify “sponsors of terrorism or leaders in a hostile state,” he said.
The action marks a departure from the U.S. Treasury’s precedent, which for years has “carefully distinguished bad actors from neutral tools” and “technology that they (besides everyone else in the world) able to use it.”
Elliptic says there are also differences between the Treasury data and its own calculations. Elliptic found that at least $1.5 billion in proceeds from crimes such as ransomware, hacking and fraud was laundered through TornadoCash, and it says the government’s figure of $7 billion refers to crypto. Assets are the full value sent by Tornado Cash. .
Its effects are already evident. Circle, the company behind the US dollar-pegged stablecoin USDC, has reportedly frozen about $75,000 worth of USDC that was linked to Tornado, according to Crypto criminals data aggregator Dion.
Cryptocurrency exchange Coinbase will also have to stop its users from sending funds to TornadoCash in light of new Treasury rules.
Redboard Says That Cryptocurrency Holders Will Finally Have A Way To Protect Their Identity
“While today’s ruling will affect U.S. persons conducting legitimate transactions, they will likely be able to find other avenues,” he said.
But the problem for Crypto criminals users looking for an alternative mixing service is that no one else has the scale of TornadoCash, making it difficult to ensure your identity is protected.
“If someone isn’t using them, it’s very easy to get out of the mix and track them down,” Robinson said. “You need a lot of liquidity in there to make it effective as a mixer, and it takes time to get that liquidity together and get it going,” Robinson said.
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