Cryptocurrency-mixing Service Tornado Cash Blacklisted by U.S. Treasury

On Monday, the Office of Assets Control (OFAC) added cryptocurrency-mixing service, Tornado Cash, to its Specially Designated Nationals (SDN) list, effectively banning all Americans from using it. Any American citizen who interacts with the protocol and any of its Ethereum wallet addresses may face criminal penalties. 

This move came after Blockchain analysis showed Tornado Cash ‘has been the go-to mixer’ for the Lazarus Group, a North Korean hacking group tied to a $625 million hack of Axie Infinity’s Ronin Network back in March. 

A senior department official said,

Tornado Cash has been the go-to mixer for cybercriminals looking to launder the proceeds of crime, as well as helping to enable hackers, including those currently under U.S. sanctions, to launder the proceeds of their cybercrimes by covering up the origin and transfer of this illicit virtual currency.

The Data

Onchain data analysis shows that Ronin hackers have repeatedly laundered the proceeds through Tornado Cash. According to blockchain analytics firm, Nansen, there was a spike in ether (ETH) deposits on Tornado Cash soon after the Ronin hack. 

The privacy platform’s average monthly deposits rose to well over 220,000 ETH in May and June from less than 120,000 ETH in the months prior. Of these, Nansen estimates that around 18% (167,400 ETH) came from the Ronin hack. 

Blockchain analysis from Elliptic and other groups also found that proceeds of other hacks were laundered through Tornado Cash. These included 4,600 ETH stolen from Crypto.com and a portion of the money stolen from the $100 million Harmony bridge and $200 million Nomad bridge hacks. 

Since its creation back in 2019, Tornado Cash has reportedly laundered more than $7 billion worth of virtual currency.

A Threat to National Security

The SDN is a list of entities and persons who OFAC deems to present a threat to national security, foreign policy, or the economy of the U.S. 

According to Ari Redbord, head of legal and government affairs at TRM labs, Tornado Cash’s inclusion in this list may be because OFAC believes the Lazarus group’s activities on the protocol are a threat to national security. 

Speaking to Coindesk, he said, 

When you talk about North Korea in particular, Tornado Cash has been the go-to mixing service. What OFAC is saying is, ‘These hacks are more than hacks; they’re serious national security risks.’ It’s not just money laundering – it’s money laundering that’s going to be used for weapons proliferation.

Tornado Cash is not the first mixing service to be sanctioned on this grounds. Back in May, OFAC sanctioned Blender.io, a protocol the Treasury Department alleged was used to launder about $20.5 million in cryptocurrencies stolen from Ronin among other proceeds from ransomware attacks. 

What Do Sanctions Mean for Tornado Cash?

Speaking to Coindesk earlier this year, Tornado Cash co-founder Roman Semenov said the mixer was designed to operate in a completely decentralized manner. 

The protocol was specifically designed this way to be unstoppable, because it wouldn't make much sense if some third party [such as a developer] would have control over it. This would be the same as if someone had control over Bitcoin or Ethereum.

And in March this year, Semenov told Bloomberg News that given how decentralized protocols like Tornado Cash are designed,  it is “technically impossible” for sanctions to be applied. 

However, the senior Treasury Department official said that OFAC would continue monitoring mixing services and may take further action if the protocol continued to operate as it is.

“We do believe that this action will send a really critical message to the private sector about the risks associated with mixers writ large, which obviously is designed to inhibit Tornado Cash or any sort of reconstituted versions of it to continue to operate.”

He also stated that the agency has not seen evidence to suggest that Blender.io “has remained active post that designation” since they sanctioned the mixer. So, it remains to be seen whether Tornado Cash will continue to operate like before. 

Now that it is on the sanctions list, all U.S. citizens are tasked with ensuring they do not interact with cryptocurrencies transacted through the mixer. 

Reactions

OFAC sanctioned more than 40 addresses, including Tornado Cash’s donation address, proxy address, a few USDC addresses, and the Gitcoin grant address. According to Redbord, this is the Treasury Department’s “largest, most impactful action” in cryptocurrency to date.

A good number of people in the cryptocurrency space do not appreciate this move. Some took to Twitter to voice their displeasure, calling it the beginning of ‘the war on privacy.’

One user shared an excerpt of Coin Center’s statement on the move, which called it a sanction on a neutral tool that can be used for good or bad. Emphasizing the war on privacy, the statement read;

 “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.”