Tornado Cash Faces U.S. Government Sanctions as Crypto Crackdown Continues

  • Tornado Cash is being sanctioned by the U.S. Treasury.
  • The government agency cites the tool’s use in crypto crime as a driving force behind the decision.
  • U.S. residents are banned from using Tornado Cash or interacting with a long list of addresses associated with it.
Tornado Cash - Tornado Cash Faces U.S. Government Sanctions as Crypto Crackdown Continues

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Much to the chagrin of investors and developers everywhere, crypto and crime go together like peanut butter and jelly. It has been very difficult for the market to shake its “wild west” label since its popularity began to surge in 2020. And with this year being the most lucrative for crypto criminals yet, there’s little sign of this activity slowing down. However, the massive number of stolen funds is catching the attention of legislators and regulators in the U.S., prompting a growing crackdown in the crypto world. Tornado Cash is finding itself directly in the crosshairs today as it faces government sanctions.

In the first half of 2022, cybersecurity company CertiK reported a whopping $2 billion in crypto assets has been stolen from users. This is more than the value of all crypto assets stolen through entirety of 2021. While crypto becomes more popular, it appears security threats are only growing larger.

As projects start to take on security measures to protect themselves — or not — crypto crime is only becoming a bigger problem. Criminals are conducting phishing scams, Wall Street-style pump-and-dumps and sophisticated protocol exploits more than ever before. Part of the blame can be placed on the projects themselves. Another part of the blame can be placed on a lack of global infrastructure, keeping government bodies like the Department of Justice (DOJ) from going after projects.

But there’s another major factor allowing criminals to continue getting away with their crimes. There are tools at the disposal of these criminals tailor-made to help them escape with their stolen assets — specifically, crypto mixers like Tornado Cash. And now that the DOJ is starting to get more involved in stopping crypto crime, Tornado Cash is among the first projects to stoke the ire of regulators.

Tornado Cash Suffers Sanctions by U.S. Treasury

Tornado Cash is finding itself caught up in a very difficult situation. It is becoming one of the first crypto projects to face sanctions from the U.S. government. The news comes at a time when the U.S. is beginning to ramp up its prosecution of crypto criminals.

Tornado Cash aids crypto crime directly by contributing to the laundering of funds. It is the most prominent “crypto mixing” service; users deposit funds into the tool, which then mixes the funds with those of other users. This, like money laundering, makes it more difficult for authorities to track a “paper trail” and reveal the direction in which stolen funds are heading.

It’s an extremely popular tool for crime, since crypto is otherwise relatively easily traceable with enough dedication. North Korean state-backed crypto hacking outfit Lazarus Group even uses Tornado Cash. Through it, the group was able to steal more than $600 million in digital assets from the Ronin (RON-USD) chain earlier this year.

So, it’s no surprise the government is finally beginning to crack down on it and other mixers. The U.S. Treasury announced a sanction on Tornado Cash today, which will be enforced by the Office of Foreign Asset Control (OFAC). In its announcement, the OFAC directly cites the project’s ties to North Korea as a driving factor behind the blacklisting. As a result of the sanctions, U.S. citizens are barred from interacting with the protocol. They are also banned from interacting with more than 40 addresses associated with the project.

On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Brenden Rearick is a Financial News Writer for InvestorPlace’s Today’s Market team. He mainly covers digital assets and tech stocks, with a focus on crypto regulation and DeFi.

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