The primary intention behind the tornado cash crackdown by the Treasury Department was to stop criminals. But due to this action, a number of ordinary crypto investors with genuine intentions are now at risk.
According to Ari Redbord, head of legal and government affairs at research firm TRM Labs, when it comes to Tornado Cash, every person in the US need to be very careful while making transactions. In an interview, he said intent does not matter, as sanctions are strict liability.
Suppose anyone pays to buy something using their crypto wallet. In that case, the transfer recipient receives access to the public crypto wallet of purchases and allows it to see account details as well as payment history. Some individuals used tornado cash as they found this way legitimate to protect their privacy in this emerging crypto market.
A crypto mixing service like tornado cash hides all these details related to crypto wallets by anonymizing the funds and putting a mask on the buyer’s identity.
Tom Robinson, a chief scientist at Elliptic, a blockchain analytics firm, said that even if an individual using a crypto wallet is not doing anything which led their act to be considered illegal, there has to be a way that will help to hide their tracks.
On Thursday, in blacklisting tornado cash, the Treasury Department stated that the objective behind taking this step is to block criminals who previously used this service to legalize virtual currency worth more than US$7 billion since the service launched in 2019.
Experts told CNBC that these sanctions by the Treasury’s Office of Foreign Assets Control (OFAC) aimed to put a halt on a state like North Korea from translating their illegal crypto funds into traditional common currencies to buy more weapons intending to increase its stocks. For investors, the consequences of these sanctions are going to be very harsh.
Peter Van Valkenburgh, director of research at Coin Center, a non-profit cryptocurrency think-tank, said that in previous times, OFAC has placed the cryptocurrency wallet while addressing its “Specially Designated Nationals list.” At this point, the Treasury Department is aiming to address a smart contract allowing consumers to maintain their personal privacy.
According to Van Valkenburgh, the Treasury Department is not just targeting a specific individual who is considered a member of an enemy state or a terrorist, but it is targeting a kind of software that works on a peer-to-peer network on the internet which is fundamentally different.
Van Valkenburgh said that when it comes to financial controls, OFAC is considered a prime option. It is generally used to recognize “a leader in an enemy state or a supporter of terrorism.”
As per Jake Chervinsky, head of policy at the Blockchain Association, this step by the OFAC will be marked as a further step from its basic standards for the US Treasury, which for years, has made wise decisions on distinguishing bad actors from neutral tools and the technology that they can use.
Elliptic also mentions that there is a gap between its own calculations and the Treasury’s data. According to its calculations, minimum proceeds of US$1.5 billion is from crimes, including hacks, frauds, and ransomware. These crimes have been laundered by using the tornado cash service. It also says that the amount of US$7 billion from the government indicates the overall value of crypto assets that have been transferred using tornado cash.
According to Dune, a crypto data aggregator, the negative impact of these sanctions is already apparent. Circle, the company behind the US dollar-pegged stablecoin USDC, has fixed at around $75,000 in USDC, which was associated with tornado.
As per the latest ground rules from Treasury, Crypto exchange Coinbase also has to stop its customers from making transactions through tornado cash.
According to Redbord, customers who use cryptocurrencies will ultimately find an option to protect their personal details. At the same time, these sanctions will likely have an impact on every US citizen who is doing transactions in a legal way, and they have to find other ways now.
But, the major concern in looking for another mixing service for crypto users is that no other service comes with the scale of tornado cash, which makes it more challenging to ensure their personal data is protected.