Tornado Cash ban: Will Crypto Tumblers Disappear?

The U.S. Treasury is accusing the largest open-source software project based on the Ethereum blockchain of cybercrimes. This accusation could have a severe effect on privacy protocols and could damage the reputation of Web3 protocols providing privacy.

On top of that, concerns are growing that other similar privacy protocols would be targeted by governments and add more censorship, making the entire Web3 space meaningless.

Could the current Tornado Cash ban impact other privacy protocols? Will crypto tumblers disappear once regulators have a clear understanding of them? Should we criminalize these privacy and anonymity tools instead of individuals? These are important questions that we’ll keep asking as events unfold.

What Is Tornado Cash?

Tornado Cash is one of the largest decentralized privacy solutions built on Ethereum. The crypto tumbler receives a variety of transactions and combines them together before sending them to their intended recipients.

How does it work? Tornado Cash assures transaction privacy by breaking the on-chain link between the sender and the recipient. The Tornado Cash smart contract accepts ETH and other ERC-20 tokens, mixes them with other deposits, and sends them to the recipient address, thus making the funds untraceable.

It’s easy to understand why Tornado Cash has become the most popular protocol among privacy-oriented individuals.

The U.S. Treasury banned individuals from using Tornato Cash

Earlier this month, the U.S. Department of the Treasury revealed in a press release that the anonymous cryptocurrency Tornado Cash mixer has helped launder over $7 billion worth of virtual currency since its creation in 2019.

“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” – Brian E. Nelson, the Under Secretary of the Treasury for Terrorism and Financial Intelligence.

In this press release, the U.S. Treasury declared that the virtual currency mixers are a threat to national security, as they could assist criminals, and has introduced serious sanctions against Tornado Cash: “Virtual currency mixers that assist criminals are a threat to U.S. national security. Treasury will continue to investigate the use of mixers for illicit purposes and use its authorities to respond to illicit financing risks in the virtual currency ecosystem“.

You might also be interested to read NYC State Department Calling For Stricter Regulations Regarding Stablecoins.

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