Tornado Cash will no longer be able to “mix” your crypto to anonymize your transactions…thanks to North Korea infamously using it for money-laundering. Plus, why THORChain (RUNE-USD) became the new hotness in DeFi, in today’s New Digital World.
Sanctions for North Korea’s Favorite Crypto “Mixer”
Anyone who’s surprised by Monday’s sanctions – keep in mind: Tornado Cash (TORN-USD) was mixed up in North Korea’s $625 million theft from Axie Infinity (AXS-USD) in March… And basically every other high-profile hack this year.
Why? Tornado Cash is a mixer, meaning that it “mixes together” different users’ data packets and sends them through the network in random order. The more users, the easier it is to hide your transactions in plain sight.
This makes it useful for money-laundering. And since every transaction, every wallet address on the blockchain is recorded publicly for all to see… This is what the hackers needed to do if they wanted to get away with their stolen USD Coin (USDC-USD) and Wrapped Ethereum (WETH-USD). It’s something that the Feds have been calling “a crime” since at least 2020.
What’s got the crypto community up in arms about these sanctions is: This is the first such action against a protocol – not people.
For years, @USTreasury has carefully distinguished bad actors from the neutral tools & technology that they (plus everyone else in the world) are able to use.
The decision to sanction @TornadoCash, a decentralized protocol, threatens that smart & balanced approach to crypto.
— Jake Chervinsky (@jchervinsky) August 8, 2022
Mixers have legitimate uses, too: Vitalik Buterin, founder of Ethereum (ETH-USD), said he used Tornado Cash to donate to Ukraine. Privacy services are something I’ve highlighted before, too, with a use I see as relatable: dating on the blockchain.
Nonetheless: Mixers have been in law enforcement’s crosshairs before. But Tornado Cash had made its code completely open-source in July, by putting it up on GitHub so “any public contributor interested in improving the design can simply review the code” and request a copy, as CoinDesk explains.
Well…they won’t be getting any more code from Tornado Cash co-founder Roman Semenov, as he was booted from GitHub on Monday. (Tornado Cash says its smart contracts, though, remain in place on the Ethereum blockchain.)
“Despite not being individually named as a Specially Designated National, or SDN, of Treasury’s Office of Foreign Asset Control,” as Tornado Cash was itself, Semenov “seemed to be facing repercussions from the Treasury alleging Tornado Cash had laundered more than $7 billion worth of cryptocurrency,” Cointelegraph reports. (Blockchain experts Elliptic, though, say it’s more like $1.5 billion.)
“As SDNs, identified firms and individuals have their assets blocked and ‘U.S. persons are generally prohibited from dealing with them.’” Try going to Tornado.cash (from a U.S. IP address), and you’ll see what they mean. It’s been erased from your internet experience.
Certain crypto wallets of Tornado Cash’s were added individually to the SDN/sanctions list, and these wallets have been “blacklisted” by Circle, the creator of USDC stablecoins.
“The owner becomes unable to receive or transfer USDC funds on-chain from that address,” explains The Block. Previously, Circle “froze about $100,000 in USDC belonging to a wallet address in July 2020. The company said the action was based on a law enforcement request. Rival stablecoin Tether has frozen 653 addresses on Ethereum over the last few years.”
My take: In terms of internet privacy, being cut off from tools like Tornado Cash is unsettling… But at least those companies which are willing and able to play ball with the Feds will attain an air of “legitimate finance.” And anyway, I’m sure Jake Chervinsky, who I quoted above – and who’s the Head of Policy at the Blockchain Association – will have something to say about it next time he’s on Capitol Hill.
Other Top Stories From the New Digital World
The news is coming so fast and furious, we’d be here all day just for me to scrape the tip of the iceberg…
Luckily, my colleagues at InvestorPlace and other sites are doing great reporting on all of this – so don’t miss it:
Listen Now: New Podcast Episode
Ever wonder why THORChain (RUNE-USD) became the new hotness in DeFi this year? Find out why in the latest Untold Stories podcast from our own Charlie Shrem.
In this morning’s episode, Charlie hosts THORChain technical lead Chad Barraford… Who explains why THORChain was against crypto “bridges” and wrapped assets BEFORE they got companies like Axie Infinity into big trouble from security breaches and hacks.
Decentralization is the key for these bitcoin O.G.s. Charlie and Chad are joined by Erik Voorhees of ShapeShift – which was the first prominent centralized exchange to shift to decentralized exchanges (DEXs). Specifically, it aggregates them, so you can pick whichever DEX suits your trade.
Erik’s was the first to integrate THORChain… And today he explains why the technology is so attractive. Listen now to hear the case for THORChain bringing crypto to its full potential.
On the date of publication, Ashley Cassell 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 InvestorPlace.com Publishing Guidelines. To have more news from The New Digital World sent to your inbox, click here to sign up for the newsletter.