As the saying goes, “Internet anonymity is a myth” and never has online privacy been more relevant than today.
Even Bitcoin and Blockchain technology, introduced for secure, private financial transactions, couldn’t guarantee 100% anonymity due to public ledger books and government regulations.
To address this, developers conceptualized a novel idea: an open-source cryptocurrency mixer program allowing withdrawals and deposits from a pooled crypto fund to shield sender and receiver identities.
Thus, Tornado Cash, an open-source decentralized program running on the Ethereum Virtual Machine (EVM) network, was born. Launched in 2019, it aimed to break the direct link between sender and receiver in transactions.
However, Tornado Cash came under fire for potentially enabling money laundering. The US Department of the Treasury blacklisted the Tornado Cash in August 2022, making it illegal for US residents to use. The US government claimed the program facilitated the laundering of over $7 billion since its inception.
Let’s dive into the concept of Tornado Cash, how it works, and the reasons behind its sanctioning by the US government.
What is Tornado Cash?
Tornado Cash is a privacy tool built on the Ethereum blockchain. It allows users to mix their cryptocurrency with others, essentially obscuring the history of the funds and making it difficult to trace where they came from.
The US Department of the Treasury calls Tornado Cash a “virtual currency mixer” running on the Ethereum blockchain.
“Tornado Cash indiscriminately facilitates anonymous transactions by obfuscating their origin, destination and counterparties, with no attempt to determine their origin,” a statement from the department reads.
To understand how Tornado Cash functions, let’s break down its definition and working mechanism: Tornado Cash is an open-source, decentralized cryptocurrency mixer that relies on smart contracts deployed on blockchains. To match deposits and withdrawals, Tornado Cash uses a cryptographic technique called “zero-knowledge proofs” (ZKPs). ZKPs allow one party to prove they possess something (like funds for withdrawal) without revealing any additional information.
How Tornado Cash App Works
- Connecting Wallet: The user connects their cryptocurrency wallet to Tornado Cash to facilitate the transaction.
- Depositing Funds: The user specifies the amount of cryptocurrency they wish to deposit into Tornado Cash.
- Generating Security Key: Tornado Cash generates a unique security key for the user and provides them with a copy.
- Shared Pool: The deposited cryptocurrency is added to a shared pool of funds created by Tornado Cash.
- Anonymizing Transactions: Another user with the associated security key can withdraw the funds from the shared pool.
- Breaking Direct Links: This process breaks any direct link between the sender and receiver, ensuring complete anonymity.
- Zero-Knowledge Proof: Using zero-knowledge proof, the withdrawal can be proven valid without revealing any details about the deposit, maintaining privacy.
US OFAC Sanctions Tornado Cash
The US Department of Treasury claims that the Tornado Cash service has been used to launder virtual money and facilitate other illicit activities. They allege that funds worth over $7 billion have been laundered using the Tornado Cash program.
On August 8, 2022, the tumbler service was banned in the US, and all financial services associated with it have been banned.
“Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks,” said Brian E. Nelson, Under Secretary for the Treasury for Terrorism and Financial Intelligence.
Security Measures While Using Tornado Cash
There are some security measures users can employ to enhance anonymity while using Tornado Cash, but it’s important to remember these techniques are not foolproof:
- Strategic Withdrawals: Avoid immediate withdrawals after deposits. Make them after additional deposits are made to the pool, making it harder to link transactions.
- Use Different Addresses: Always use different addresses for deposits and withdrawals to reduce traceable patterns.
- Multiple Deposits: Break down large deposits into smaller amounts and make them at separate times for increased anonymity.
- Strong Sets: Blend in with the crowd by using pools with higher deposit values. This makes it harder to distinguish individual transactions.
Conclusion
Despite US sanctions, Tornado Cash remains a topic of discussion. Recently, two senators questioned the Department of Justice regarding strict prohibitions on unlicensed non-custodial money transmitting services like Tornado Cash. They argued such measures could criminalize computer developers.
While Tornado Cash offers a high degree of anonymity, it’s important to acknowledge counterarguments. Strict regulations aim to address the potential misuse of such services for illegal activities.
Disclaimer: This is an advertorial published on The Crypto Times website. The article has been written by a guest author and the editorial team of The Crypto Times has not edited it. Readers are advised to do their due diligence regarding the service’s legality and risks before using them.
