The blacklisting of Tornado Cash by the U.S. Treasury on Monday will accomplish more than just punish criminals.
According to analysts, many common cryptocurrency investors are going to suffer.
The Treasury Department launched a crackdown on Tornado Cash in an effort to apprehend criminals. However, a lot of innocuous average crypto investors suddenly find themselves in peril.
Ari Redbord, head of legal and political affairs at research firm TRM Labs, stated in an interview that every American must be extremely cautious when using Tornado Cash. “Keep in mind that penalties are strict liability. No of their intentions, average crypto investors are going to suffer losses, according to experts.
By anonymizing the funds and hiding the buyer’s identity, a crypto mixing service like Tornado Cash hides those specifics.
Ari Redbord, head of legal and political affairs at research firm TRM Labs, stated in an interview that every American must be extremely cautious when using Tornado Cash. “Keep in mind that penalties are strict liability. No of their intentions, average crypto investors are going to suffer losses, according to experts.
Even when you are not engaging in illegal activity, there is a need for tools that can help you hide your footprints, according to Tom Robinson, chief scientist at blockchain analytics company Elliptic.
The Treasury Department said it was targeting criminals when it blacklisted Tornado Cash on Thursday. Since the service’s introduction in 2019, criminals have used it to launder more than $7 billion in virtual money.
The Office of Foreign Assets Control (OFAC) of the Treasury enacted these sanctions to stop nations like North Korea from converting illegal cryptocurrency funds into more accessible traditional currencies to finance the proliferation of weapons, but regular investors will suffer a lot as a result, experts warned CNBC.
The “Specially Designated Nationals list” maintained by OFAC already contains addresses for cryptocurrency wallets. The Treasury is presently concentrating on the address of a smart contract that enables people to preserve their own personal privacy, claims Peter Van Valkenburgh, the director of research at Coin Center, a non-profit cryptocurrency think tank.
“Targeting a software component”
Van Valkenburgh declared, “That is fundamentally different, because now you’re not targeting a specific person who is a known terrorist or a citizen of an enemy state.” “You’re aiming at a piece of software running on an internet peer-to-peer network.”
Van Valkenburgh asserts that when it comes to financial restrictions, OFAC is somewhat of a nuclear option. Identifying “a supporter of terrorism or a leader in an enemy state,” he claimed, is what it is utilised for most frequently.
The U.S. Treasury has historically “carefully distinguished bad actors from the neutral tools” and “technology that they (plus everyone else in the world) are able to use,” according to Jake Chervinsky, head of policy at the Blockchain Association, who stated that this action represents a departure from precedent.
Elliptic finds a difference between the Treasury’s numbers and its own projections. The government’s $7 billion estimate, according to Elliptic, refers to the total value of digital assets delivered via Tornado Cash. Elliptic found that Tornado Cash has been used to launder at least $1.5 billion in funds from crimes like ransomware, hacking, and fraud.
The results are already apparent. The business behind the U.S. dollar-pegged stablecoin USDC, Circle, has reportedly restricted about $75,000 in USDC that was associated with Tornado, according to Dune, a cryptocurrency data aggregator.
The cryptocurrency exchange Coinbase will also need to stop users from sending money to Tornado Cash in light of the new Treasury regulations.
According to Redbord, cryptocurrency owners will soon learn how to protect their identities.
While the designation announced today will impact Americans who are conducting legal business, he predicted that they will find alternate routes.
It is relatively simple to break through the mix and track through them if no one is utilising them, according to Robinson. For it to function as a mixer, “you need a significant pot of liquidity there, and it takes time to pull together that liquidity and get that utilisation going,” said Robinson.
