US Treasury blacklists Tornado Cash, sparking criticism from the crypto industry

    10 Aug 2022

    The US Treasury sanctions against the crypto mixer Tornado Cash meet criticism from the crypto community. While GitHub, stablecoin issuers and crypto infrastructure providers join the Treasury action, some anonymous troll is sending crypto from a Tornado Cash wallet, trying to “dust” numerous celebrities.

    On August 8, the US Department of the Treasury announced sanctions against the virtual currency mixer Tornado Cash, which it claims has helped launder more than $455 million for the Lazarus Group, a hacking organization associated with the North Korean government. The US Treasury also said that Tornado Cash has been used to launder more than $7 billion worth in crypto since 2019.

    Previously, the US has accused North Korea of using hackers to steal funds that can be used to finance its weapons program. The sanctions prohibit Americans from using the mixer and freeze any of its US assets.

    The Lazarus Group, a North Korean state-sponsored hacking group, is under US sanctions and has been responsible for several significant data breaches, including a hack of Sony Pictures in 2014, a $100 million hack of Harmony Protocol, and one of the DeFi history’s biggest heists of Ronin Bridge, linked to the popular NFT-based game Axie Infinity, which lost roughly $625 million worth in crypto.

    “Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks,” Brian E Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence, said in the statement.

    Back in May, the Treasury imposed sanctions for the first time on another crypto mixer Blender, a software tool that pools and scrambles cryptocurrencies from thousands of addresses.

    Following the US Treasury Monday sanctions and adding its wallet addresses to its sanctions list, the platform’s website, email, and GitHub accounts have all been taken down. Circle, the USDC stablecoin issuer, has also frozen USDC in affected wallets. Tornado Cash’s open source code disappeared from the developer platform GitHub, while one of the co-founders of Tornado Cash, Roman Semenov, has reported his GitHub account was suspended.

    Later, crypto application and node infrastructure providers popular among crypto users Infura and Alchemy also blacklisted Tornado Cash after the US Treasury sanctions. According to Twitter user 0xdev0, both platforms have currently disabled access to their Ethereum API on the Tornado Cash front-end user interface.

    As a result, Tornado Cash’s token TORN plunged down 24%, as per CoinGecko data. TORN has lost 95% of its value since its all-time high last February.

    On the other hand, The Treasury action was criticized within the crypto industry because it affects any person using Tornado Cash, not just those involved in money laundering or other crimes.

    The Specially Designated Nationals (SDN) list is generally used to “identify persons involved in terrorism, enemy states, or other state-sanctioned activities and ensure that these individuals cannot get the benefit of the US financial system,” Coin Center Executive Director Jerry Brito and Research Director Peter Van Valkenburgh wrote. Coin Center is a cryptocurrency research and advocacy group.

    The sanction of Tornado Cash is unusual because a “smart contract is a robot, not a person,” and Treasury’s action seems “to be the sanctioning of a tool that is neutral in character, and that can be put to good or bad uses like any other technology,” they wrote. “It is not any specific bad actor who is being sanctioned, but instead, it is all Americans who may wish to use this automated tool in order to protect their own privacy while transacting online who are having their liberty curtailed without the benefit of any due process.”

    Meanwhile, an anonymous troll is sending celebrities Ethereum from a Tornado Cash wallet – presumably as a way to demonstrate how difficult it will be for US officials to enforce its ban on the mixing service.

    So far, Jimmy Fallon, Coinbase CEO Brian Armstrong, PUMA, digital artist Beeple, musician Steve Aoki, and YouTuber Logan Paul are among the celebrities “dusted” by the troll, meaning their Ethereum wallets have received small amounts of Ethereum – thus, they “interacted” with the criminal address.

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