There’s been no letup in the whirlwind unleashed by the U.S. Treasury’s sanction of Tornado Cash.
One of the more eye-opening responses involved degens testing the government’s security monitors by continuing to pump transactions through the sanctioned protocol.
On Tuesday, 1,787 ETH, or almost $3M, was sent through Tornado Cash with 166 of those transactions being for 0.1 ETH, according to TornadoBot, a Twitter bot tracking Tornado Cash.
The day before, the U.S. Office of Foreign Assets Control (OFAC) had barred American citizens from transactions with Tornado Cash. The act of crypto civil disobedience caught the attention of many who were at once baffled and disturbed by the U.S. government’s crackdown on crypto privacy.
“Maybe the strategy is confrontation of the absurdity, to force everyone to violate OFAC including entities that have a hand in writing OFAC to show how profane the policy is,” Joseph Delong, the CTO of NFT lending protocol Astoria, told The Defiant. “The government doesn’t think, they just react on the collective impulse.”
The Feds’ action jolted the crypto community just as it was starting to relax and enjoy a summer rally led by Ethereum and the promise of its coming upgrade, The Merge. Suddenly it feels like it’s open season on transaction privacy, which is one of the core values in decentralized finance.
Players ranging from giants like Circle and MakerDAO to individual investors are scrambling to respond to the significance of the clampdown on Tornado Cash. Emotions are running high as the crypto community reckons with the latest threat from the very authorities blockchain technology is supposed to sidestep.
“We’re in exactly the right place at exactly the right time to fight the most important battles for civil liberty & financial freedom in our transition to the digital age,” tweeted Jake Chervinsky, the head of policy at the Blockchain Association, an industry lobbying group in Washington D.C.
“I’m grateful for the chance to make a difference with you all. I wouldn’t have it any other way. Let’s go.”
Users employ Tornado Cash to mix their crypto deposits with tokens from other wallets. Tokenholders do this to protect the privacy of their transactions and holdings, but the government sees the protocol as a way to launder dirty money.
In its statement, the Treasury said Tornado Cash had laundered $7B worth of virtual currencies since its launch in 2019, including $455M stolen by the Lazarus Group, a notorious band of hackers based in North Korea. The Feds said hackers involved in other exploits, including the $100M Harmony bridge attack in June, also washed their loot in Tornado wallets.
Under the sanction, no U.S. citizens are permitted to interact with Tornado Cash’s contracts or wallets. This marks the first time the government has sanctioned a protocol — lines of code — rather than sanctioning the wallet of say, a hacker.
It didn’t take long for degens to react to the news in creative ways.
Tornado Cash allows users to send crypto to an array of public wallets. As a way to mess with the authorities, some degens are triggering sanctions by transferring tokens to famous celebs and crypto leaders.
In the last 48 hours, wallets belonging to Coinbase CEO Brian Armstrong, basketball player Shaquille O’Neal , talk show host Jimmy Fallon, and venture capitalist Ben Horowitz have received crypto via Tornado Cash, according to data on Etherscan.
“This underscores the Pandora’s Box that [the U.S. Treasury] may have opened by sanctioning autonomous blockchain-based software for the first time,” tweeted Chervinsky.
‘This underscores the Pandora’s Box that may have opened by sanctioning autonomous blockchain-based software for the first time.’
At the same time, two major crypto infrastructure providers, Infura and Alchemy, have blocked access to their Ethereum API to Tornado Cash users, which was first pointed out by Twitter user 0xdev0.
As Ethereum’s most used node providers, Infura and Alchemy allow users to access blockchain services remotely without running their own node. MetaMask’s parent company ConsenSys acquired Infura in 2019, and the two services are used together by default.
Lack of Access
APIs are essential for a protocol to be accessed by users on Ethereum. Therefore, once a protocol like Tornado Cash is banned, it will be cut off from a considerable user base due to lack of access.
The block has currently disabled the privacy service interface for Tornado Cash users, but they are still able to interact directly with the smart contract, according to some Twitter users.
Meanwhile, GitHub, one of the most important fixtures in the infrastructure of the global software industry with 83M contributing developers, has been dragged into the Tornado Cash imbroglio as well.
Tornado Cash’s GitHub organization and the personal accounts of Tornado Cash contributors were all suspended indefinitely. GitHub is a privately owned company and can do what it wants — in this case, censoring and suspending the programmers behind an open source protocol.
“Is writing an open source code illegal now?” tweeted Roman Semenov, co-founder of Tornado Cash. Semenov did not respond to a request for comment.
One of the biggest impacts has been on USDC, the No. 2 stablecoin after Tether’s USDT in terms of market cap.
Stablecoin USDC’s creator Circle Pay froze USDC funds on all sanctioned addresses. About 75,000 USDC was frozen out of 500,000 total tokens, according to blockchain analytics firm Nansen.
“It is likely nearly all responsible registered Virtual Asset Service Providers also took steps to block customers from transacting with these addresses, or face charges of willfully avoiding US sanctions compliance obligations, which can bring up to 30 years in prison.” tweeted Jeremy Allaire, founder of Circle Pay.
Allaire agreed that this regulatory intervention “crossed a major threshold in the history of the internet”. Allaire posted a blog explaining that Circle will be calling on crypto leaders, associations, and developers to come together and help advance crypto’s legal frameworks.
He believes that “more blunt force enforcement actions [will be done] if we don’t take action now.”