Invented in 2019, Tornado Cash is a privacy-centric tool that is based on the Ethereum blockchain network. The decentralized solution allows users to make transactions discreetly, concealing the on-chain link between the sender and receiver on the Ethereum network. Tornado Cash is famous due to how it enhances privacy and anonymity for users.
In August 2022, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) blacklisted Tornado Cash in an attempt to curb the use of the privacy tool and cryptocurrency for illegal activities. The ban on the privacy tool represents the first time the U.S. agency will blacklist software.
Before the ban, the federal agency had never listed open-source software on its Specially Designated Nationals and Blocked Persons list. This is due to how the primary objective of the OFAC focuses on individuals and entities. Meanwhile, in a press release about the ban, the OFAC ruled that the ban focuses on stopping Americans from using the tool.
Despite the ban, the OFAC failed to establish a particular control to stop the use of Tornado Cash for money laundering. Before the ban, the OFAC ruled criminals had used Tornado Cash to conceal the trails of cryptocurrencies worth more than $7 billion. While explaining the rationale behind the ban, the OFAC emphasized that the privacy tool is a threat to the national security of the United States.
How North Korea Played a Vital Role in the Ban
However, the OFAC stated that North Korea’s hackers, the Lazarus Group, played a huge role in the ban on Tornado Cash. In April 2022, the United States government accused the group of carrying out the $600 million hack of popular crypto game, Axie Infinity’s Ronin network.
According to United States officials, the hackers are sponsored by the North Korean Government to loot cryptocurrency projects. Furthermore, the allegation indicated that the group is generating revenue for the North Korean government to push its weapons of mass destruction and ballistic missile projects.
In addition, U.S. officials explained that the group often uses Tornado Cash to conceal the movement of its loot. The officials added that at the time of the sanction, about 18% of the funds flowing through the privacy tool were loot from the Axie Infinity hack. Hence, the usage of Tornado Cash by the Lazarus group led to the ban of the privacy tool.
The ban on the crypto mixer generated a lot of controversies. Crypto enthusiasts bemoaned the ban, claiming that it is a reflection of the U.S. government’s opposition to virtual assets. In reaction, groups and individuals filed different lawsuits against the U.S. government due to the ban.
Why Tornado Cash is still in use Despite the Ban
It is worth mentioning that firms like Infura and Alchemy that provide crypto API and node infrastructure blacklisted Tornado Cash. With that, U.S. citizens cannot communicate with blockchains because Remote Procedure Calls (RPC) provided by the aforementioned firms to the crypto mixer are blocked.
Despite that, the ban on Tornado Cash isn’t effective due to its decentralization, as users outside the U.S. can still access the crypto mixer. Also, the tool is based on smart contracts that are powered by blockchain technology. Hence, as a result of its decentralized nature and the support of its smart contracts, it has been difficult for the OFAC to shut down its activities.
Conclusion
There are claims that the ban on Tornado Cash is a reflection of the United States’ tough approach to cryptocurrency usage in the country. A part of the crypto community feels that the ban on the crypto mixer due to its usage by the Lazarus group is not enough.
This led to crypto enthusiasts filing lawsuits against the OFAC. One of the foremost legal actions against the ban is a lawsuit backed by Coinbase. The lawsuit challenged the OFAC authority to place a sanction against a computer code. More so, the lawsuit compelled the agency to redesign the ban and give a new reason for it.
Despite the ban by the OFAC, the Ethereum-based privacy tool, Tornado Cash is still in use. This is due to how the ban is only effective within the United States and its jurisdiction. With the ban, users of Tornado Cash in the United States cannot access the tool.
Nevertheless, the tool is still available for users outside the country. Hence, the ineffectiveness of the ban outside the U.S. birthed the continuous usage of Tornado Cash.