Tornado Cash - Privacy and Crime

OFAC claims the mixing service has been used for money laundering and other illegal purposes.

The Treasury Department's Office of Foreign Asset Control (OFAC) added Tornado Cash and more than 40 Ethereum and USDC addresses associated with the crypto mixing service to the agency's Specially Designated Nationals list Monday. OFAC claims the mixing service has been used for money laundering and other illegal purposes.

How Tornado Cash works?

Tornado.Cash is:

-A fully decentralized, non-custodial protocol that improves transaction privacy by breaking the on-chain link between source and destination addresses.

-To protect privacy, Tornado.Cash uses a smart contract that accepts deposits of ETH and other tokens from one address and allows them to withdraw to a different address, i.e. send ETH and other tokens to any address.

-These smart contracts act as a pool that mixes all deposited assets, and when you put funds into the pool (i.e. deposit), a private credential (random key) is generated, proving that you performed the deposit operation. 

Tornado Cash is a popular tool for hackers to hide theirs tracks after hacking. Back in Feburary, after the OpenSea vulnerability incident, the attackers used Tornado.cash to mix 1,100 ETH after selling some of the NFTs obtained from the attack. According to the floor price of mainstream assets, hackers have obtained at least $4.166 million.

The U.S. Treasury Department on Monday announced sanctions on coin mixer Tornado Cash, barring U.S. citizens from using the service and accusing the platform of laundering more than $7 billion in cryptocurrencies since 2019, including the North Korean hacking group Lazarus Group $455 million stolen from the Lazarus Group.

Currently, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has placed Tornado Cash’s website, as well as multiple Ethereum wallet addresses, on the Sanctions List (SDN), which prohibits all U.S. citizens and entities from trading with Tornado Cash or any ethereum associated with the protocol. Square wallet address to interact.

Meanwhile, the U.S. Treasury Department ordered an asset freeze on Tornado Cash and said anyone using the service within U.S. jurisdiction would be subject to civil and potential criminal penalties.

Tornado Cash co-founder Roman Semenov wrote that after the U.S. Treasury Department’s sanctions announcement, Tornado Cash’s code is still running, while his personal GitHub account has been deactivated and his personal repository has been closed, but he did not Placed on the Sanctions List (SDN).

Meanwhile, Circle, the issuer of the U.S. dollar stablecoin USDC, on Monday froze funds associated with 44 Tornado Cash addresses estimated to be worth more than 75,000 USDC, according to crypto data aggregator Dune Analytics.

In actual use, users need to deposit cryptocurrencies into the Tornado Cash privacy asset pool and mix them with other users' cryptocurrencies to disguise the source and destination of funds while protecting personal privacy.

While some users do so primarily to protect privacy, the U.S. government says Tornado Cash facilitates illegal activities, including "facilitating robbery, ransomware, fraud, and other cybercriminals," and "a cryptocurrency mixer that assists criminals." a threat to U.S. national security."

Fun fact:

Max chaos — someone is sending TC’d ETH to big doxxed wallets like Shaq, Beeple, Randi Zuckerberg, Ben Horowitz, Brian Armstrong, etc