Recent US sanctions against cryptocurrency mixer Tornado Cash have sparked a debate within the crypto community over whether the ban compromises users’ ability to operate anonymously.
Earlier this week, the Treasury Department imposed sanctions on Tornado Cash for helping hackers launder more than $7 billion in virtual currency. The agency said the mixing service enabled cybercriminal groups, including North Korean-backed hackers, to use its platform to launder the proceeds of cybercrimes.
The Treasury’s decision has divided the crypto community — supporters of the service argue the penalties violate their right to privacy, while critics say the ban is a way to deter criminals from using the platform to hiding and laundering illicit funds.
“In an effort to punish hackers and cybercriminals, the Treasury just made a clumsy attempt to sanction Tornado Cash, an open source protocol,” wrote Lia Holland, director of campaigns and communications at Fight for the Future, a group defense of digital rights.
Cryptocurrency mixers like Tornado Cash have become popular in recent years as crypto investors have turned to the service to make their transactions anonymous and harder to trace by mixing their funds with others on the blockchain.
Holland explained that regular transactions recorded on the blockchain are permanent, public, and easily traceable, prompting investors to turn to mixers for better privacy.
“Anonymity is not a crime, and there are many legitimate reasons to seek anonymity in financial transactions,” Holland said.
For example, she said the use of blenders could protect the identity of activists in authoritarian countries where disclosing their financial information could get them jailed or executed.
Holland added that the Treasury should focus on prosecuting cybercriminals instead of sanctioning the tool they use to launder illicit proceeds.
“It’s a rough equivalent of penalizing the email protocol in the early days of the Internet, with the rationale that email is often used to facilitate phishing attacks,” she said.
Jake Chervinsky, chief policy officer at the Blockchain Association, recently said on Twitter that the sanctions may have opened a Pandora’s box, hinting at the possibility of similar bans in the future.
“There are good reasons why sanctions have always applied to entities, not technology,” Chervinsky said. “Treating Tornado Cash as an ‘entity’ makes no sense.”
Meanwhile, critics of crypto mixers say they simply shouldn’t exist because they harbor criminal activity that often goes unnoticed and is harder to trace.
“I look at [the sanctions] as a way to prevent some of these incentives to commit these types of corporate crimes,” said Bryan Daugherty, Certified Cryptocurrency Investigator and Director of Public Policy at the Bitcoin Association.
Daugherty added that crypto mixers are often used by criminal groups to conceal illicit funds and sees no reason non-criminal users would want to take the risk of using the same platform other than being anonymous.
By using mixers, “you run the risk of contaminating your legally earned coins with someone else’s illegally earned coins,” Daugherty said.
He added that it is important to distinguish between privacy and anonymity in this context.
He argued that investors should be able to operate confidentially on the blockchain where the public cannot identify, trace, or access users’ financial information, except for law enforcement if they have probable cause to. do it.
In the case of anonymity, the identity is completely hidden, making it even harder for the government to trace the transaction, Daugherty said.
“You only incite crime by being able to create anonymity,” he added.
However, he acknowledged that developers should improve privacy on the blockchain, but not to the point of allowing users to be anonymous as they have been on Tornado Cash and other crypto mixers.
In Monday’s announcement, the Treasury Department said the Lazarus Group, a state-sponsored hacking group linked to North Korea, used Tornado Cash to steal more than $455 million in cryptocurrency. , the largest virtual currency theft known to date. The United States sanctioned the group in 2019.
The agency also disclosed that Tornado Cash was used to launder more than $96 million in illicit cyber funds from the Harmony Bridge heist and at least $7.8 million from the Nomad crypto theft.
“Despite public assurances to the contrary, Tornado Cash has repeatedly failed to impose effective controls intended to prevent it from routinely laundering funds to malicious cyber actors and without basic measures to address its risks,” Brian Nelson said. , Undersecretary of the Treasury for Terrorism and Finance. information earlier this week.
A senior administration official said on a call with reporters that the Tornado Cash sanctions were the latest move by the United States to crack down on North Korea’s continued illicit use of cryptocurrency.
The Treasury sanctioned another crypto blender, Blender.io, in May, alleging it was being used to launder money from North Korean government-backed hackers.
A recent report from Chainalysis, a blockchain data firm, found that the use of crypto mixers hit an all-time high in 2022, with state-sponsored actors and cybercriminals making up a large portion of users.
In 2022, illicit addresses account for 23% of funds sent to mixers, up from 12% in 2021, according to the report.
“Overall, if we label cybercriminal organizations with known nation-state affiliations, we can see that these groups represent a large and growing share of all illicit cryptocurrencies sent to mixers,” the report states.