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The U.S. Treasury Department recently sanctioned the cryptocurrency mixer Tornado Cash over allegations that it was being used to launder money. The departmented claims, among other allegations, that North Korean hackers used Tornado Cash to steal over $455 million.
The sanction, and subsequent arrests of developers tied to Tornado Cash, will have a “massive chilling effect on developers worldwide” in the crypto and DeFi industry, said Steven Sidley, Professor at the University of Johannesburg and Head of the university’s Blockchain and CryptoVerse Research Group. The idea that governments do not want transactions to be anonymous , according to Sidley, is “at the hot molten core at the tension between individual and state.”
Ran Neuner, Host of Crypto Banter and CEO of Onchain Capital, echoed concerns about the widespread ramifications of the U.S. government’s move. He added that this is the first time a piece of software has been subject to sanctions, saying, “it’s like the U.S. government putting sanctions on the internet.”
Sidley and Neuner spoke with Michelle Makori, Editor-in-Chief and Lead Anchor at Kitco News.
Tornado Cash
A cryptocurrency mixer like Tornado Cash allows users to send crypto to others, without revealing individual wallet addresses.
“We all put our money into [a mixer],” Neuner explained. “And when you want to take money out of it, it pays it out of a central Tornado Cash address. So what it does is to eliminate the traceability of money.”
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) claimed that $7 billion was laundered through Tornado Cash.
“Tornado Cash has been used for $7 billion worth of transactions,” said Neuner. “However, Chainalysis, which is probably one of the most reputable companies in the [crypto] world and has also worked with the U.S. government, did an analysis. What they found is that only 10 percent of transactions in Tornado Cash were used for hacks and illicit activity.”
Sidley added that the sanctions on Tornado Cash were unprecedented, and likely not legal.
“It is the first time that OFAC has sanctioned something that is not connected to a human being,” said Sidley. “They have sanctioned a piece of neutral code. It’s never been done before, it’s unprecedented in law. And it is doubtful whether it would survive a court challenge, but that’s not why they did it… The government has gone right to the center of this thing and has basically said, you may not make anonymous payments.”
Arrest of Developer
Dutch authorities arrested Tornado Cash developer Alex Pertsev on August 10th, in connection with the U.S. government’s sanction on the protocol.
“The worst part of it is that in Holland, a developer was arrested because he wrote Tornado Cash,” said Neuner. “It’s so absurd that it’s actually unbelievable.”
Coin Center, a non-profit focused on crypto regulation, has sued the U.S. Treasury over the Tornado Cash sanction.
“I believe this case will be successful,” said Sidley. “There will be a chilling effect until they’re able to win that, which may be months or years. But I think that eventually the government will stand down… The whole thing is a mockery. And I have some faith that legislative justice will prevail in this matter and they will stand down.”
Concerns over anonymity and privacy also swirl around Central Bank Digital Currencies, which critics claim can be used to track and control individuals.
To find out more details on the Tornado Cash sanction, as well as Neuner’s and Sidley’s thoughts on Central Bank Digital Currencies, watch the video above.
Follow Michelle Makori on Twitter: @MichelleMakori
Follow Kitco News on Twitter: @KitcoNewsNOW
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