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Tornado Cash Redesignation: Does it Change Anything for US Users?

Tornado Cash Redesignation: Does it Change Anything for US Users?

Even as crypto melted down after the FTX debacle, the US Treasury Department changed the basis on which it sanctioned crypto blending service Tornado Cash after court cases argued that the government should support such a ban on open-source technology cannot prevail. On Tuesday, November 8th, the Treasury Department announced that its Office of Foreign Assets Control (OFAC, for its acronym) had “simultaneously eliminated and rebranded” Tornado Cash. Expanding on his earlier justification, he emphasized that the service supported North Korean hackers and added language to claim that it ultimately helped the country’s weapons of mass destruction (WMD). Tornado Cash is a privacy platform built on the Ethereum blockchain. Ensures financial privacy by accepting user payments and consolidating them into a single address to hide the source.

Since its launch in August 2019, the service has mixed more than $7.6 billion worth of ether, according to Chainalysis, almost 30% of which has been linked to illegal actors.

When the Treasury Department first banned the service in August, it claimed that Tornado Cash concealed the movement of more than $455 million stolen by Lazarus, a North Korean government-led cybercrime group. His new sanctions include allegations that Tornado Cash supported, sponsored or assisted the Democratic People’s Republic of Korea (DPRK) nuclear and ballistic missile activities. In addition, the Ministry of Finance imposed sanctions on North Korea’s state-owned airline, Air Koryo, and two people, Ri Sok and Yan Zhiyong, who allegedly helped transfer missile parts from China to the country.

Treasury unfazed by lawsuits over open-source protocol

The new OFAC designation still means that people in the US are prohibited from sending or receiving money through Tornado Cash. Technically, the only difference is how the Treasury defines the service. There was much debate in the months following the first tornado cash sanctions. How and if OFAC can sanction a Code. It also had a chilling effect on crypto developers, who were rightly concerned that OFAC’s statement could set a precedent. Coinbase backed a lawsuit filed by Tornado Cash users against the Treasury, arguing that the sanctions would hit innocent users.

Coin Center, a crypto policy nonprofit, filed a similar lawsuit, saying that the Treasury overstepped its regulator because Tornado Cash is not a “person” but an “external privacy tool” that eludes everyone’s control.”

Peter van Valkenburgh, the Mint’s research director, argued that a federal law authorizing OFAC only allows it “to sanction property in which a foreign or domestic country has an interest.” And Tornado Cash isn’t in that space, he said. The Treasury has now addressed these concerns on an FAQ page, stating that Tornado Cash is a malleable entity under the International Emergency Economic Powers Act (IEEPA). The service can be defined as a “partnership, association, trust, joint venture, corporation, group, sub-group or other organization,” said. The FAQ states that Tornado Cash’s organizational structure consists of founders and partner developers who created the service and promoted the platform to grow their user base.

And while individuals have not been identified, Tornado Cash’s ownership of and interest in the property is barred.

Coin Center’s Valkenburgh believes the renaming changes nothing. “Nothing they have announced changes our strategy in this lawsuit,” he said in a tweet Tuesday night. He specifically addressed the Treasury Department’s new FAQ about the sanctioned “entity” and indicated that OFAC still does not understand the basic principles of the case. “These events highlight the Treasury Department’s actions as being arbitrary and capricious, as well as its continued ignorance of technology, it continued. What influenced the renaming was the native Tornado Cash token. TORN crashed at $4.23 At the time of writing, CoinGecko data showed. At its peak in February 2021, the coin was worth $436.16.

OFAC’s recent justification is just a power play, according to Slava Demchuck, CEO of cryptocurrency enforcement firm AMLBot. “The regulator is merely trying to demonstrate their authority by bringing up the issue of mixers and anonymity in the bitcoin industry and regain control of crypto market share,” he told Blockworks.

‘Dusting attacks’ to be safeguarded.

Celebrity cryptocurrency users, including Justin Sun, Jimmy Fallon and Shaquille O’Neal, reported being locked out by DeFi protocols after receiving random amounts of Ether via Tornado Cash in a “dust attack.” This implied that regular cryptocurrency users without nefarious activities were not necessarily safe. OFAC’s updated FAQs now include a provision for such scenarios, allowing persons who have received a “dusting transaction” to apply for a specific license to participate in the transaction. Alex Pipusev, the founder of GTON Capital, believes that decentralizing Tornado Cash means the service will go undeterred. “Although regulators are shutting it down, they can’t stop it from working.

You can block websites, pressure miners to censor transactions, or block addresses that have interacted with dApps. But accurate decentralized apps can’t stop working anyway, even if you lock up the developers,” he told Blockworks. It will undoubtedly remain unstoppable, decentralized and resistant to censorship.

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