Tornado Cash banned by OFAC!
What does that mean for crypto?
What is Tornado Cash? A fully decentralized protocol for private transactions on Ethereum or in other words it is a digital currency mixer. So for the newer folks let’s review what a ‘coin mixer’ is. A coin mixer is essentially a means of making cryptocurrency transactions more anonymous and harder to track.
Tornado Cash was created by a Russian Team and it is believed that they are settled in the US and participate in many Ethereum community events. Therefore, they can’t actually be “criminals” for building open source software. Now let’s see what the US Treasury and Office of Foreign Assets Control (OFAC) have to say about Tornado Cash:
While US Treasury claims that more than $7 billion was laundered using Tornado Cash, according to a report done by Chainalysis, only 10.5% of the ETH that went through Tornado Cash were stolen funds and 17.7% were from countries on the sanctions list. That means only 28.2% of the funds that were sent to Tornado Cash could be considered as money laundering and you should also consider that since becoming active in August 2019, Tornado Cash received a total of $7.6 billion worth of ETH.
Now, it is really important to know that OFAC or US Treasury or whoever is responsible didn’t actually go after the criminals that used Tornado Cash to launder their funds. No, what they did was banning a Smart Contract. They banned a tool which could be used with good or bad intentions just like any other technology. Collins Belton who is a fantastic cryptocurrency lawyer called this ban the most significant legal action that has occurred in crypto and could have absolutely gargantuan ripple effects for everything from dev liability to first amendment implications of code publication.
Jerry Brito from Coin Center said: “Today’s action does not seem so much as a sanction against a person or entity with agency. It appears instead 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.”
It’s also interesting to know about the ripple effects this event has caused such as Microsoft-owned GitHub which is an Internet hosting service for software development and version control using Git, immediately shut down the account of three developers who contributed code to the Tornado Cash project and then removed the Tornado Cash account along with their source code. RPC nodes run by Ethereum infrastructure providers @AlchemyPlatform and @Infura_io started blocking RPC requests to Tornado Cash. Circle the issuer of USD Coin (USDC) froze over $75,000 of USDC sitting in Tornado Cash addresses.
During these times, it is critical for every person in the crypto community to understand the importance of the situation and fight for the right cause. Some of the newbies in the space started supporting the sanctions thinking that with Tornado Cash being down, it will be an end for mixer protocols and eventually an end for hacks in crypto which many people get caught in, but they are wrong.
Even though forks of the Tornado Cash software have remained on Github after the ban, Matthew Greens who is a Cryptography professor at the Johns Hopkins Information Security Institute, published another fork of the software with the support of the Electronic Frontier Foundation (EFF).
Matthew Greens along with his EFF colleague Kurt Opsahl, were not happy with the removal of Tornado Cash’s source code from GitHub and had argued that the hosting service had suppressed speech with the move. Green wrote the following in an explanatory note on his tornado-repositories repo:
“In my work as a researcher and instructor at Johns Hopkins, I’ve made extensive use of the Tornado Cash and Tornado Nova source code to teach concepts related to cryptocurrency privacy and zero-knowledge technology. My students have built amazing projects from the code. The loss or decreased availability of this source code will be harmful to the scientific and technical communities.”
Green says the fork he published exists to test whether code removal is ever the appropriate response to sanctions. He says that if GitHub takes the code down, the EFF will challenge that decision in court.
Furthermore, a Tornado Cash developer, Alexey Pertsev was arrested in Amsterdam by Dutch Police. He has been in jail for over 2 weeks now and a judge wrote that he will spend the next 90 days in jail as well until his court hearing, even though no charges have been laid, not a single one! One can only guess that building open source software is a crime now. If you too believe that open source development is in danger and want to take action before it’s too late, you can go ahead and sing this petition to free Alexey Pertsev.
In conclusion, coin mixers are a necessary privacy tool for a world where cryptocurrencies have got mass adoption and banning Tornado Cash will not stop such softwares from being built again. As I mentioned before, forks of the software are still available on GitHub, new forks are getting published as well and also the Tornado Cash source code itself is still available on IPFS. Similar technologies like Coin Join have been available on the Bitcoin network for a long time too.
I will continue with listing a few examples of the utilities of coin mixers to give a better understanding to the freshman in crypto reading this:
A twitter user Jeff Coleman sets a very good example by writing “Wanting to donate to Ukraine is a great example of a valid need for financial privacy: even if the government where you live is in full support, you might not want Russian government to have full details of your actions.” and in his response Ethereum co-founder Vitalik Buterin offered himself as an example of someone who used Tornado Cash to donate to Ukraine.
Another example is if you are running a business in the crypto industry and the salaries of your employees are paid in crypto, you need coin mixers like Tornado Cash to obtain privacy in order to grow your business otherwise everyone in your company would be aware of your assets and the salary of other employees which is not good for business. Or influencers, celebrities and public figures whose wallet addresses are doxxed either from their NFT Marketplace account or by another method, if they want to invest in a high risk project and don’t want their community to trace the transactions and follow them; they require coin mixers to obtain privacy.
In all the examples the person can also use centralized exchanges but that would be the exact opposite of the cryptocurrency objective since decentralization is the goal and decentralized exchanges are growing day by day to remove the “necessary” in the “necessary evil” that is the centralized exchanges. Always remember, Not Your Keys, Not Your Coins!
After all, if OFAC wants to stop money laundering crimes, it’s best if they go after the real criminals, not the open source software developers with no laid charges!
