US authorities accuse Tornado Cash of having contributed to laundering via its solution near « 7 billion dollars of virtual currency since its launch in August 2019. In theory, this measure makes any interaction with wallets or contracts linked with the entity illegal for US citizens.
Cryptomixers are protocols whose smart contracts, computer programs that can be configured on a blockchain network, make it possible to anonymize transactions, or at least make them more difficult to trace. To do this, the protocol will mix the requested cryptocurrencies with a stock and then send others to a requested address. Currently, the total value locked up (TVL) on Tornado cash is around $430 million, mostly ETH, the cryptocurrency of the Ethereum network. The TVL exceeded one billion between September and November 2021.
Privacy on the Blockchain
Immediately after the ban, many figures in the cryptosphere took to Twitter, such as Vitalik Buterin, a leading figure in the Ethereum ecosystem, who recalled the need for anonymity, especially when a Russian citizen wanted to make an anonymous donation to Ukraine. Tornado Cash is also used by many crypto companies to somehow preserve their business rights since everything is traceable on the most used blockchain networks like Ethereum or Bitcoin. “You don’t necessarily want everyone to know what investments you are making. If one of the addresses you use leaks, Tornado Cash is useful for regaining anonymity », explains Noé Giglio, co-founder of White Loop Capital, private investment fund specializing in cryptoassets.
According to Chainalysis, a benchmark in tracking crypto-asset transactions, 18% of the funds that have passed through Tornado Cash since its launch came from sanctioned entities and just under 11% were identified as stolen funds. These statistics have fueled arguments and counter-arguments about the use of this type of tool for a large part of the crypto ecosystem. “For me, this type of measure will remove a useful tool for the greatest number. Those who want to use it for illegal activities will continue to do so,” sorry Noé Giglio.
A ban that is difficult to enforce
Tornado Cash is not the first mixer of such importance to be blacklisted by US authorities. Last May, the US Treasury had already sanctioned Blender after identifying its link with money laundering from the hacking of the Ronin Network, the largest in the history of the crypto ecosystem with $624 million stolen.
But unlike Blender which is a centralized server, Tornado Cash cannot simply be stopped, the code of smart contracts that can operate without maintenance from the developers. The American authorities have therefore filed addresses linked to Tornado Cash and in the process, Circle announced to freeze addresses holding USDC, the stablecoin issued by the company and which is currently the second largest in the crypto market, in link with Tornado Cash. “Circle is a regulated company, which complies with sanctions requests. We’ve addressed penalties and blocked addresses associated with Tornado Cash “said the company in a press release. It is in particular this power of censorship that pushes many DeFi players to launch their decentralized stablecoin, to be less dependent on centralized stablecoins such as USDC or USDT from Tether.