TThe battle between the cryptocurrency community and the US government over financial privacy is dramatic as the government seeks to crack down on criminals escalated to
Tornado Cash is a service that helps some cryptocurrency holders protect their anonymity by scrambling information trails on the blockchain. On Monday, the Treasury Department banned Americans from using the service, claiming it played a central role in laundering more than $7 billion in money
In a statement, the Treasury Department's Office of Foreign Assets Control (OFAC) called Tornado Cash a "serious threat to the national security" of the United States and claimed it was used. North Korean hackers have gone from stealing millions of dollars to laundering money.
However, the decision drew fierce backlash from many in the cryptocurrency community, who viewed it as an overreach by the government that went against core values of privacy and autonomy. On Twitter, crypto attorney Collins Belton called "probably the most significant lawsuit ever to occur in crypto" and warned it could create "absolutely huge repercussions." .
The Ministry of Finance's decision could significantly change the way users use virtual currency. It also sets the stage for many fierce legal and rhetorical battles between the cryptocurrency industry and the US government.
Crime Concealment
When you send cryptocurrency from one account to another, a record of the transaction is permanently imprinted on the blockchain. Investigators and discerning detectives can use this public information to track money flows and learn about the financial activities of individuals and businesses. For example, the U.S. Department of Justicetrackedblockchain records to shut down a global child abuse website and arrest hundreds of criminals.
This transparency has led to the creation of “mixing” services designed to hide activity on the blockchain. Users can deposit cryptocurrencies into the mixer. Mixers use complex cryptography to obfuscate money tracking and send it to a new wallet address. From there, users can withdraw their funds and eventually cash them out anonymously.
According to a recent report from blockchain analytics firm Chainalysis, the explosive use of cryptocurrencies in both legal and illicit activities has led mixers to “ It has become the go-to tool for cybercriminals.” According to the study, nearly 10% of all funds sent from illegal addresses went to mixers, and 2022 saw a significant increase in the use of mixers for illegal activities.
Although the cryptocurrency ecosystem plays an important role in illicit activity," Andrew Fiermann, head of sanctions strategy at Chainalysis, wrote in an email to TIME. increase.
North Korea's Role
One of the main drivers of this increase is the increased activity of North Korean hackers, US officials say. In April, U.S. Treasury officials spearheaded a $600 million hack into the Ronin network ofpopular crypto game Axie Infinity,allegedly backed by the North Korean government. It accused the hacking organization Lazarus Groupof these officials that the North Korean government was using the hacks to "generate revenue for its weapons of mass destruction and ballistic missile programs." claims.
And Ronin attackers used Tornado Cash to launder money,officials sayThey said $600 million was stolen from the Ronin network by the Lazarus Group. After it was leaked to an existing wallet, it was sent to an intermediate wallet, washing $10 million at a time via Tornado Cash. Attempts by the developers of Tornado Cash to block Lazarus wallets from interacting with Tornado Cash have been unsuccessful. Ari Redbord, head of legal and government affairs at his TRM Labs, a blockchain analytics firm Nansen
, said the Ronin hack was a major turning point for crypto regulation. said. “Ronin has really changed the way the U.S. government views money laundering in the crypto space. ,” he says.
Redbord estimates that $1 billion of North Korea-related money laundered went through Tornado Cash, the 10 largest attacks carried out by North Korean hackers. We presume the hack used Tornado Cash to launder those funds.
So on Monday, the Treasury Department put Tornado Cash and the addresses of his wallets associated with Smart-His Contracts on the Specially Designated Nationals (SDN) list in a way that makes them enemies of the state. . Americans who now interact with these addresses could face criminal penalties.
Backlash against cryptocurrencies
But while Tornado Cash is used by criminals, it is widely used legally by all types of users. "People want to establish anonymity for a variety of reasons. They don't want anyone to see their credit card statements or they Venmo," he says.
This week, Tornado Cash proponents , said the service was simply a tool-neutral one that could be used for better or worse, and that virtual private networks (VPNs) and The Claimed to be similar to Onion. Router (TOR).
"This is much like sanctioning email protocols in the early days of the Internet, justifying that email was often used to facilitate phishing attacks." Fight for the Future, a for-profit organization,wrote in a statement.
There are many reasons why someone might want to use a Tornado cache. For example, an employee who is paid in cryptocurrency by a company may not want their employer to know all their financial details. His NFT enthusiast, who recently made a fortune thanks to smart investments, may not want to be the target of potential harassment or robbery.
Tornado caches may also be useful to those living under oppressive governments. Ethereum founder Vitalik Buterin defended the service this week, writing onTwitter that he himself would use his Tornado Cash to donate to Ukrainian causes. He said he did not have to put the tissue he received under special scrutiny. Roe v. After the Wade decision is overturned, a donor to the abortion fund may want to use his Tornado Cash to keep his identity hidden.
Battles in preparation
The Treasury Department's decision to ban Tornado Cash could mark a significant turning point for cryptocurrencies in several ways. First, it shows how willing the U.S. government is in its attempts to corral cryptocurrencies as they creep towards mainstream adoption. Tornado Cash defenders point out that the decision is unprecedented in that the sanctions were imposed on the code rather than the entity. (Tornado Cash is not an incorporated organization, it is a mechanism controlled by software logic.) This step can be applied to other types of smart contracts, including DAOs (Decentralized Autonomous Organizations). decentralized agency in the crosshairs soon.
TRM Labs' Redbord said the Treasury Department's decision highlights the U.S. government's desire to push cryptocurrencies toward more centralized systems and platforms that are easier to regulate. ing. For example, the trading platform Coinbase has a requirement to tie all cryptocurrency wallets to a verifiable human identity. “This action sends a message to cryptocurrency exchanges that they need to ensure compliance controls are in place to deter cybercriminals from using their platforms,” he said.
And some major cryptocurrency players are lining up. Circle, the issuer of the second largest stablecoin, USD Coin (USDC), has frozen more than $75,000 worth of funds linked toTornado Cash addressesor , Github, a software development platform owned by Microsoft , has deleted a Tornado Cash developer's account .
However, cryptocurrency enthusiasts resist attempts to centralize policies and transactions. After all, Bitcoin was created in the wake of the 2008 financial crisis, with early adopters wanting a global, unregulated form of currency that could withstand Wall Street pressure. Many are flocking to cryptocurrencies to enable anonymous financial transactions that are hidden from scrutiny by authorities.
In recent days, Tornado Cash defenders have launched their own attacks on the decision, in several ways. First, they drew attention to the logical flaws of this decision. It means that anyone who interacts with Tornado Cash contracts is doing so illegally. Individual users cannot decline incoming transactions. Small amounts of cryptocurrency have been sent to prominent public wallet addresses, including those associated withJimmy Fallon and Shaquille O'Neal. whole community. (Redbord says he has doubts about whether individuals were the subject of this decision in the first place and whether OFAC is paying much attention to this campaign.)
A much bigger battle may lie ahead. Some high-profile crypto lawyers are beginning to have thoughts of challenging the decision on constitutional grounds. “Banning software is banning speech,” Peter Van Valkenburgh, his director of research at Coin Center, said on stage at the cryptocurrency conference in Las Vegas on Monday. rice field. “Even laws that unfairly discourage speech are constitutionally dubious,and can be challenged even before enforcement.”
Crypto Enthusiasts Forward As they seek their way forward, they must face some difficult choices. How to suppress illegal activities with a system built to withstand surveillance. And either cooperate with or oppose the government, thereby causing even more anger and scrutiny. So far, much of the crypto industry seems to be responding strongly to the Treasury Department's decision by taking an ideological stance. "Although most people would never use a service like Tornado Cash, the government's approach sets a dangerous precedent that limits the right of Americans to use privacy tools for legitimate and lawful reasons." said Miller Whitehouse-Levine, policy director at DeFi Education. Fund wrote in an email to Time. "Privacy is not and will not be a crime."
Contact Us letters@time. com
