Did you know that the US Treasury banned the cryptocurrency tumbler, Tornado Cash over
fears of hacking from North Korean Hackers? But Why?
Do the fears indicate sanctions on crypto trading in the country? Read this article till the end to know the issue.
Table of Contents
Why is the US putting up Sanctions?
The Office of Foreign Assets Control added Tornado cash to its Specially Designated
Nationalist List and barred all Americans from trading in Ethereum and related wallets.
But, what is the Specially Designated Nationalist List? It is a tally of all the blocklist people,
entities, and forged crypto addresses.
What is Tornado Cash?
Tornado Cash is a software tool and a one-stop solution to all the privacy and anonymity
issues in Cryptocurrency. It acts as a mixer, combining different elements of potentially
identifiable Cryptocurrency.
In 2019, it was developed as an experimenting software, which later transformed into a
non-custodial, anonymity software tool for the Ethereum-based zkSNARKs technology. In addition, Ethereum supports smart contracts, essentially the technology behind
decentralized transactions.
Numerous decentralized finance (Defi) structures correspond with blockchain technology.
Ethereum is an essential part of Decentralized finance, decentralized economy, metaverse,
Non-Fungible Tokens and blockchain.
Tornado Cash makes the best use of smart contracts on the Ethereum network to create a
link between different crypto transactions. The company protocol can achieve the maximum level of privacy as it disrupts the connection between sender and recipient addresses.
Tornado Cash generates a secret hash code whenever the user enters a contract and
deposits his assets. While entering into smart contracts transactions, these hash are known
as commitments, which make the users liable for the responsibility at the withdrawal time.
However, the inflexible nature of the protocol makes the transactions unchangeable. Not
even the developers are permitted to tap and change the nature of transactions. Thus,
making it the most secure database to function.
The Case:
On August 8, 2022, the United States Treasury announced a sanction on Tornado Cash. The official report states that “all property and interests of Tornado Cash in the United States or the possession or control of US persons are blocked and must be reported to OFAC.
Apart from the above restriction, all entities with a 50% or more direct or indirect stake by
one or more blocked persons are also shut down.
Why did the US issue sanctions on the virtual currency mixer?
Since its inception in 2019, the virtual currency mixer, Tornado Cash allegedly raised $7
billion worth of digital currency, out of which digital currency of $455 billion was stolen by the notorious state-sponsored hacking group of North Korea.
The Lazarus Group, also known as the state-hacking group of the Democratic People’s
The Republic of Korea was sanctioned by the United States of America in 2019. It is the greatest cyberbulgar in the world to date.
As a part of anti-money laundering actions, the Office of Foreign Assets Control of America
issued guidelines to sanction the digital currency, Tornado Cash. Apart from the legitimate sources of raising $7 billion money, there is a cited link between the on-chain criminal activities on the Ethereum-based mixer tool.
Cyber attacks are prevalent over virtual currency tools and types of equipment. Attempts are made to make them more secure and lawful. However, there’s always a threat from cyber players.
The US Treasury is working on the proceedings to counter such criminal offenses via mixers, peer-to-peer exchangers, and darknet markets.
In addition, the Treasury is acting following the private players and national and international organizations to tackle the malicious activities of cyber criminals under the crypto bubble.
What could be the expected Implications of the Sanction?
Despite various warnings and regulations by the OFAC, the virtual currency mixer, Tornado
Cash, couldn’t control the malicious activities in its space. Thus, the Treasury has to sanction its operations in the country.
As a result of the sudden ban, there are certain implications of the ban, not only for
American residents but citizens across the globe. What are they?
The following are some of the implications of the sanctions on the Digital currency mixer, Tornado Cash:
- Seizing the entities of Tornado Cash: In pursuance of the order issued by the authorities, all properties of Tornado Cash in the United States or held by Americans are blocked and must be immediately reported to the OFAC.
- Contribution for the blocked persons: The prohibitions include the sanctions on
making any contributions in the form of provision funds, goods, services, gifts or any
other asset by, to, or for the advantage of the blocked persons. - Investigation and the Use of Mixers: The Treasury stated that it will carry on the
inquiry about the mixers to check their use and financing risks
Will it Lead to a Sanction on Cryptocurrency?
Numerous people say that the United States is waging war on Cryptocurrency. Is it so? What does the ban on Cryptocurrency indicate?
The United States of America is checking the digital currency mixers. It is to make the crypto transactions safe across the country and to avoid future situations such as the recent Tornado Cash.
Many countries have been skeptical about the issue and use Cryptocurrency for daily transactions. The major concerns have been privacy issues and cyber attacks.
The ban on Cryptocurrency by the superpower, the United States, would mean a global financial crisis.
The investors won’t be able to encash their current crypto holdings. Moreover, people won’t
be able to convert their local currency into Cryptocurrency.
Regulation of Cryptocurrency is important, but putting a complete sanction on it might not be the solution.
The people saying that the United States will ban Ethereum might have gotten the answer. Latest Crypto Update: Did the US issue a sanction on Ethereum?
The idea was to sanction the use of Tornado Cash and regulate other mixers like Blendor.io. Regulation over cyber attacks and criminal dealings would increase the threat in the minds of common investors. Thus, regulation is the key.
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