What is the Tornado Cash mixer and why it was blocked?

The decentralized Tornado Cash service was created by the developers Roman Storm, Roman Semenov and Alexey Peretsev. They are the co-founders of the PEPPERSEC cybersecurity company, and also say that they have experience in blockchain projects.

Tornado Cash protocol was launched in August 2019 on the Ethereum blockchain. Nothing is known about third -party investments in the project. Also, tokens were not carried out to finance the service.

At the first stage, the developers retained control over the protocol through a wallet with a multi -signature. But in May 2020, after the launch of the second version of the protocol, to increase the level of decentralization, the team burned the keys to access to smart contracts. More than 1,100 users took part in the procedure for the so -called trusted installation, including Vitalik Buterin and Gavin Andresen.

Tornado Cash user interface code was stored in IPFS, which reduced the risks of data deletion, including in the case of legislative prohibitions. The interface will work as long as one user stores it.

What was the Torn token needed for

Tornado Cash has its own Torn Control Torn ERC-20 standard. Ethereum.

Airrop 500,000 Torn early users were produced in February 2021. More than 7,500 addresses became participants in the distribution. On average, early users got 38 Torn. At the time of the start of public trading token on exchanges, their cost amounted to more than $ 7700.

TORN control token had three functions:

  • deposit for relayers;
  • stakeing;
  • Participation in the decentralized organization Tornado Cash Dao.

To place your proposal in Tornado Cash DAO, it was necessary to have at least 1000 Torn. Only 1 torn was enough for voting. Each token is considered for 1 vote.

The proposals could touch:

  • adding new pools;
  • changes in remuneration rates;
  • distribution of treasury funds Tao.

Each proposal is voting for 5 days and for its adoption it was necessary to get at least 25 thousand votes of tokens.

How Tornado Cash worked

There are many mixers that are used for anonymous translations of cryptocurrencies. However, most of them are centralized services that can abuse users’ trust by kidnapping their means or personal data.

In contrast, the Tornado Cash protocol was built on the principle of decentralization, that is, it was a set of smart contracts with which users interacted through Web3-wallets. Contracts took deposits and mixed them in one pool, for which ZK-Snark technology was used. That is, transactions took place without disclosing information about the payments themselves, and all assets were anonymized and not related to the specific owner.

From the point of view of the user, everything happened extremely simply: he sends a cryptoactive to a smart contract from one address and then displays to another address, which is in no way connected with the address of sending. After sending funds, a private note is created. It works as a closed key that will be necessary to withdraw funds to another address.

Anonymous pools for six assets worked in the protocol: ETH, DAI, CDAI, USDC, USDT and WBTC. The commission for the withdrawal of assets from pools was 0.3% of the transfer amount, however, a number of pools with low liquidity worked without commissions.

The history of the development of the project

Throughout its history, the Tornado Cash protocol processed assets for more than $ 3.5 billion and raised more than $ 17.7 million commissions. At the same time, more than 57 thousand unique users took advantage of it.

During 2021, Tornado Cash smart contracts were deployed in other popular blockchains: BNB Chain, Polygon, Avalanche, Gnossis, Arbitrum and Optimism. However, the maximum volume of deposits was still accumulated on the Ethereum network.

In December 2021, Tornado Cash announced the launch of a major NOVA update, which worked on the GNOSIS network and, unlike the original protocol, made it possible to contribute and remove arbitrary amounts of ETH, maintaining confidentiality and providing a “shielded” transfer of funds in the pools.

What is the role of Tornado Cash in the laundering of stolen cryptoacets

The founders of cryptocurrency mixers claim that they play an important role in protecting the private life of users and investors. However, law enforcement agencies claim that such services are very often used to launder organized crime income.

During the Tornado Cash operation, you can find many examples that the service was used as a “laundry” for stolen crypto acts. Here are just some cases for 2022:

  • In January 2022 from the Singapore service Crypto.COM 4600 ETH was stolen worth $ 15 million and then “scroll” through Tornado Cash.
  • In March, supposedly North Korean hackers stole assets of $ 625 million from the popular Axie Infinity P2E game, which became one of the largest hacks in the history of the crypto industry. At least part of this amount was washed through Tornado Cash.
  • In June, the Harmony ecosystem was hacked by the Horizon cross-bridge. Attackers stole assets in the amount of about $ 100 million, most of which entered Tornado Cash.
  • In July, OMNI lending protocol was stolen and sent to a mixer assets for more than 1300 ETH (approximately $ 1.48 million).

According to CHAINALYSIS, which is analyzing blockchain transactions, more than $ 3.5 billion has passed through this mixer during this mixer, of which thefts, hacks and other illegal operations are directly related to $ 1.2 billion.

Elliptic experts claim that Tornado Cash was actively used to launder money received from fraud with NFT.

Why Tornado Cash fell under sanctions

In August 2022, the mixer, along with the Ethereum and USDC addresses associated with it, fell on the OFAC sanctions list . On blocked wallets were stablecoins, WBTC and ETH for a total of about $ 437 million. Later, the USDC at the addresses of the mixer was blocked by their issuer, the American company Circle.

The reason for the blocking was the use of Tornado Cash to launder money: according to the US authorities, since the creation of the service, attackers laundered more than $ 7 billion through it. Mixer actively used hackers of the North Korean group Lazarus.

As a result of the sanctions, all the property, user funds and the source code of Tornado Cash in the United States and abroad were blocked, and the residents and citizens of the country have banned the use of the service.

In addition to cryptocurrency, the Tornado Cash repositories and their founders in GitHub, RPC Infura and Alchemy Platform were blocked (in fact, remote). Because of this, Tornado Cash and related services stopped working. More than 250 addresses at the front -end level were blocked by the decentralized exchange of Uniswap.

The arrest of the co -founder Tornado Cash and his possible connection with the FSB

On August 12, 2022, Amsterdam was arrested by one of the creators of the mixer, developer Alexei Pertsev. He is suspected of laundering money received by criminal means using Tornado Cash.

On August 20, a rally was held in Amsterdam, the participants of which demanded the liberation of Pertsev. According to the organizers of the protest, Pertsev’s arrest is a dangerous precedent for holding open software developers in case of illegal use of these products.

The FreeAlex Public Group is opened in Telegram, which consist of more than 750 people dedicated to the struggle for the liberation of Pertsev and the lifting of sanctions from the project.

At the end of August 2022, the analytical company Kharon released a study according to which Pertsev may be connected with the Russian special services. According to researchers, in 2017, the future creator of Tornado Cash worked at digital security, which provides material and technical support for the FSB. Pertseva’s wife Ksenia Malik denied this information.

Cryptosteal reaction and assessment of the legality of sanctions against Tornado Cash

Immediately after the imposition of sanctions, the Tornado Cash DAO appeared to sue OFAC for abuse of authority when introducing restrictions on the mixer. In early September, six users of the mixer filed a corresponding claim to the Ministry of Finance, which includes OFAC, to the court of the Western District of Texas. They were supported by the Coinbase Exchange.

The human rights organization Coin Center also indicates the abuse of officials of their powers:

“Sanctions say that Americans cannot use intellectual property (t.e. Tornado Cash code in which its authors do not even have an economic interest. On the one hand, the software was released with licenses for public use, so not a single American paid for him in the past and will not pay in the future copies of the according to the computer of anyone who will be connected to the Ethereum network. A suitable metaphor-if the sanctions were imposed on some Iranian author, and Americans who already have copies of his book would forbid them to read ”.

Other representatives of the crypto industry condemned authorities and other representatives. Cardano cryptocurrency founder Charles Hoskinson said that developers should not be responsible for being used by criminals:

“It’s how to write a book about the preparation of cyanide or the creation of a bomb. The authors cannot control how this information will be used […]. Therefore, by creating a code for the protocol, the developer should not be considered an accomplice. He simply wrote a code that was technically used by attackers “.

Kraken Exchange Director Jess Powell called the actions against Tornado Cash “unconstitutional”.

The head of Coinbase Brian Armstrong added that when the sanctions were imposed, the right to privacy was violated. Instead of finding and punishing real criminals, law enforcement officers simply closed the service that they used by punishing all its users who did not want to reveal their identity, but did not engage in illegal activities.

Permission to withdraw cryptocurrency from Tornado Cash

Under the pressure of the company, the US https://gagarin.news/news/yeti-yacht-club-vs-bored-ape-yacht-club-will-the-vip-yeti-break-the-record-of-bored-apes/ Department of Finance allowed users of a blocked service to withdraw their funds from blocked addresses. This will require a special resolution. It can be obtained by providing officials about the wallets of the sender and recipient, operations, hashs and the amounts of translations, as well as the date and time of their implementation.

OFAC also noted that “open source interaction in itself […] is not prohibited” if we are not talking about illegal transactions. Coin Center called such a concession to the “pyrrhic victory”, noting that the regulator will continue to block specific addresses. At the same time, in the crypto community they called on GitHub to restore repository related to Tornado Cash.