Tornado Cash

Last updated

Tornado Cash
Tornado cash logo.jpg
Developer(s) Roman Semenov, Alexey Pertsev, Roman Storm
Initial release17 December 2019
Stable release v3 / 16 December 2021
Development statusDiscontinued
Written in Solidity
Platform Ethereum Virtual Machine
Type Cryptocurrency tumbler
License Open-source licenses
Website tornado.cash (blacklisted)

Tornado Cash (also stylized as TornadoCash) is an open source, non-custodial, fully decentralized cryptocurrency tumbler that runs on Ethereum Virtual Machine-compatible networks. It offers a service that mixes potentially identifiable or "tainted" cryptocurrency funds with others, so as to obscure the trail back to the fund's original source. This is a privacy tool used in EVM networks where all transactions are public by default. [1]

Contents

In August 2022, the U.S. Department of the Treasury blacklisted the protocol, making it illegal for US citizens, residents and companies to use it. The project's web domain and GitHub accounts were also shut down, and one of the developers of the software was arrested. On November 26, 2024 a US Federal Appeals court overturned an earlier ruling stating that the law could not sanction a protocol.

The project is governed through a decentralized autonomous organization (DAO) and uses the $TORN token as a voting system for protocol updates. [2]

Functionality

Tornado Cash uses multiple smart contracts that accept different quantities of ETH and ERC-20 deposits. [3] These deposits can later be withdrawn to a different address by providing a cryptographic proof, hence breaking the link in the chain between the sender and the recipient. Zero-knowledge proofs (in particular zk-SNARKs [4] ) are used to increase privacy, as there is no way to link a withdrawal to its deposit.[ citation needed ]

History

Tornado Cash was created in 2019, and was alleged by the U.S. Department of the Treasury to have been "used to launder more than $96 million of malicious cyber actors’ funds derived from the June 24, 2022 Harmony Bridge Heist". [5] On 8 August 2022, the Office of Foreign Assets Control of the U.S. Department of the Treasury blacklisted Tornado Cash, making it illegal for United States citizens, residents, and companies to receive or send money through the service. [6] [7] The Treasury Department accused it of laundering more than $7 billion in virtual currencies, including $455 million believed to have been stolen in 2022 by the Lazarus Group, a hacking group associated with the government of North Korea. [8] [9] The same day, the domain used by the project was taken down, and GitHub removed the Tornado Cash repository and suspended the developers' accounts. [10]

Circle, the company behind USD Coin, froze about $75,000 in USDC from Ethereum addresses belonging to the mixer. [11] [12]

On 10 August 2022, Tornado Cash developer Alexey Pertsev was arrested in Amsterdam on the suspicion of "involvement in concealing criminal financial flows and facilitating money laundering through the mixing of cryptocurrencies through the decentralised Ethereum mixing service Tornado Cash". [13]

The Electronic Frontier Foundation on April 11, 2023, announced that it was opposed to the legal actions stating: "governmental actions targeting the publication of code based upon its topic necessarily target speech" as well as raising concerns about financial privacy. [14]

On May 21, 2023, a hacker used a malicious proposal to gain full control of Tornado Cash's DAO. [15] The hacker put forth a proposal for the DAO to vote on with hidden code that would issue the fraudulent voting tokens to them. The vote was passed, giving the hacker enough voting tokens to control any future proposals. On May 26th the hacker effectively relinquished control, but had converted a portion of the stolen governance tokens to Ether valued at around $900,000, and laundered them through the service. [16]

On August 23, 2023, two more Tornado developers, Roman Storm and Roman Semenov, were charged with assisting in money laundering in the amount of $1 billion. Roman Storm was arrested in Washington State. [17] [18] [19] On May 14, 2024, Alexey Pertsev was sentenced by a court in the Netherlands to 5 years and 4 months in prison for his role in Tornado Cash development. [20] A trial of Pertsev was also pending as of that date in the United States District Court for the Southern District of New York. [20] On November 26, 2024, the United States Court of Appeals for the Fifth Circuit ruled that the immutable smart contracts used by Tornado Cash do not qualify as "property" under federal law, and that the Office of Foreign Assets Control lacked authority to sanction Tornado Cash software directly, "as opposed to the rogue persons and entities who abuse it". [21] [22]

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References

  1. ↑ Page, Carly; Anita Ramaswamy (8 August 2022). "US Treasury sanctions Tornado Cash, accused of laundering stolen crypto". TechCrunch . Archived from the original on 8 August 2022. ProQuest   2699720538
  2. ↑ Dale, Brady (8 August 2022). "Ethereum's best known privacy tool falls under U.S. sanctions". Axios . Archived from the original on 9 August 2022. ProQuest   2699720538
  3. ↑ Ramakrishnan, Vidya (18 August 2022). "Tornado Cash Ban Raises Questions in the Crypto Community". Investor's Business Daily . Los Angeles. Archived from the original on 12 October 2022. ProQuest   2703590605
  4. ↑ "TornadoCash whitepaper v1.4" (PDF). Tornado Cash. Archived from the original (PDF) on 26 October 2021.
  5. ↑ "U.S. Treasury Sanctions Notorious Virtual Currency Mixer Tornado Cash". United States Department of the Treasury . 8 August 2022.
  6. ↑ "Cyber-related Designation". U.S. Department of the Treasury. 8 August 2022. Archived from the original on 10 August 2022. Retrieved 10 August 2022.
  7. ↑ Markham, Jerry W. (2023). Cryptocurrency Regulation: A Primer. p. 41.
  8. ↑ Yaffe-Bellany, David (8 August 2022). "Treasury Dept. blacklists crypto platform used in money laundering". The New York Times . Archived from the original on 9 August 2022. Retrieved 9 August 2022.
  9. ↑ Talley, Ian; Volz, Dustin (8 August 2022). "U.S. Sanctions Crypto Platform Tornado Cash, Says It Laundered Billions". The Wall Street Journal . Archived from the original on 9 August 2022. Retrieved 9 August 2022.
  10. ↑ Claburn, Thomas (10 August 2022). "GitHub courts controversy by suspending Tornado Cash developers and reneging on cookie commitments". The Register . Archived from the original on 10 August 2022. Retrieved 10 August 2022.
  11. ↑ Sun, Mengqi (12 August 2022). "Tornado Cash's Sanctions Show Shift in Crypto Regulatory Focus". The Wall Street Journal . ISSN   0099-9660. Archived from the original on 16 August 2022. Retrieved 16 August 2022.
  12. ↑ "Tornado Cash crackdown by Treasury puts honest crypto investors at risk of criminal exposure". CNBC . 8 August 2022. Archived from the original on 18 August 2022. Retrieved 18 August 2022.
  13. ↑ "Arrest of suspected developer of Tornado Cash". Fiscal Information and Investigation Service . 12 August 2022. Archived from the original on 12 August 2022. Retrieved 12 August 2022.
  14. ↑ "An Update on Tornado Cash". 11 April 2023. Retrieved 28 August 2023.
  15. ↑ "Sanctioned Crypto Mixer Tornado Cash Hijacked By Hackers". Bloomberg.com. 21 May 2023. Archived from the original on 22 May 2023. Retrieved 22 May 2023.
  16. ↑ "Hacker Who Robbed Crypto Laundering Service Tornado Cash Uses It to Mask Loot". Bloomberg.com. 29 May 2023. Archived from the original on 29 May 2023. Retrieved 19 November 2023.
  17. ↑ "Tornado Cash Founders Storm, Semenov Charged by US in Money Laundering Scheme". Bloomberg.com. 23 August 2023. Archived from the original on 24 August 2023. Retrieved 24 August 2023.
  18. ↑ "Southern District of New York | Tornado Cash Founders Charged With Money Laundering And Sanctions Violations | United States Department of Justice". www.justice.gov. 23 August 2023. Archived from the original on 24 August 2023. Retrieved 24 August 2023.
  19. ↑ "Tornado Cash Co-Founders Accused of Helping Cybercriminals Launder Stolen Crypto". fbi.gov. 7 August 2023. Archived from the original on 16 February 2024. Retrieved 8 August 2023.
  20. 1 2 Reddick, James (14 May 2024). "Tornado Cash co-founder convicted of laundering $1.2 billion by Dutch court". TheRecord.media. Archived from the original on 20 May 2024. Retrieved 20 May 2024.
  21. ↑ Mekelburg, Madlin (27 November 2024). "US Court Tosses Sanctions of Crypto Mixer Tied to N. Korea Hack" – via www.bloomberg.com.
  22. ↑ Raymond, Nate (27 November 2024). "Court overturns U.S. sanctions against cryptocurrency mixer Tornado Cash". Reuters. Retrieved 30 November 2024.
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