Tornado Cash is what is called a mixer, a decentralized application that accepts crypto with the promise to allow you to withdraw that crypto from another account anonymously.
While this in itself isn't illegal, it has been targeted by the US government as a money laundering operation and has officially received sanctions.
While it isn't illegal to opt for privacy when it comes to your crypto or digital life, the US government is putting it all on the line to remove any ability to hide any form of weath from them.
How does Tornado Cash work?
Tornado Cash is a smart contract that accepts Ethereum deposits from one address and then allows you to withdraw it from any other address, ideally after some wait. The longer you wait, the more anonymous your transaction becomes. This is the rub with the US govermment, they do not like anything that is hidden from their view and will automatically consider it criminal activity.
You win $10,000 at a local casino and drive home with it in cash, you accept a large risk if you are pulled over for those funds to be taken (civil forfeiture) with risk of never seeing it again. These funds are tried for criminal activity, not you, so you cannot even defend yourself.
There are legitimate reasons to use a crypto mixing service such as Tornado Cash, but the US government is having it, so they put sanctions on all addresses related to Tornado Cash.
What does mean to put sactions on crypto wallets?
While it is unprecidented to put sactions on code the end goal is to prevent US citizens from interacting with the smart contract.
You can see here the addresses the US Department of Treasury sactioned.
"Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned virtual currency mixer Tornado Cash, which has been used to launder more than $7 billion worth of virtual currency since its creation in 2019."
-- US Treasury
As you can see they immediately assume all coins associated with Tornado Cash are money laundering.
"Today, Treasury is sanctioning Tornado Cash, a virtual currency mixer that launders the proceeds of cybercrimes, including those committed against victims in the United States,"
-- US Treasury
They even go so far to assume it is all comes from cyber criminals. At this point you can't even have an intelligent conversation with them as they have already made up their minds.
Throwing a litle anarchy into the mix
After the announcement of the sactions, an random individual sent funds to Tornado Cash using known wallets of celebrities and public officials. A few examples are Donald Trump, Shaq, and Jimmy Fallon. The point of this, I believe, is to make it impossible for the US Government to criminally charge everyone who has interacted with Tornado Cash blindly as there is clearly going to be collateral damage.
In recent news, a 29-year old man has been arrested in Amsterdamn by Dutch financial prosecutors. This suspect who's identity has not been released yet, is suspected as being the developer of Tornado Cash.
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