The US Department of Treasure has banned the use of Tornado Cash crypto mixer stating that it has been used to launder more than $7 billion worth of cryptocurrency since its creation in 2019. The banning of mixers has resulted in wide outrage against the US government. Privacy advocates call it a tool for ‘anonymity’ while the US government claims that it is only used for money laundering and illicit activities.
Today, we explain the technology behind these mixers and how these mixers are used for money laundering purposes.
Coin mixers
Tornado Cash (Tornado) is a cryptocurrency mixer that works on the Ethereum blockchain. It facilitates anonymous transactions by making it extremely difficult to trace crypto wallets. The mixer receives hundreds and thousands of transactions which are mixed before transferring them to an individual wallet.
For instance, say if you’d like to transfer some Bitcoin to another wallet. By using mixers, these funds will be sent to hundreds and thousands of wallets in fractions, before actually getting into the recipient’s wallet. It makes it almost impossible to retrieve the final address of the crypto wallet.
Tornado Cash allows users to connect their crypto wallet like MetaMask or Walletconnect and choose a network to deposit or withdraw their cryptos. For deposits, the token options are ETH, DAI, cDAI, USDC, USDT, and WBTC.
Coin mixers are typically non-custodial, meaning that they do not take control of your wallet. These services are neutral, meaning that they don’t use any intermediary or third party for facilitating transactions. This makes them a favourite tool for cybercriminals who are looking to launder stolen crypto, as in the case of Larazus Group.
‘Against free will’: Privacy Advocates
Privacy advocates argue that the banning of coin mixers underlines the right to anonymity. Coin Center, a crypto advocacy group said that it is examining options for challenging the decision of the US government. Jerry Brito and Van Valkenburgh, founders of Coin Center wrote that they are “still looking at the legal and constitutional ramifications.”
“The sanctions laws are being used to create a limitation on spending money not merely with some person who has been found guilty of a crime or even suspected of terrorism. This is a limit on any person who wishes to use their own money and a freely available software tool to maintain her own privacy—including for otherwise entirely legal and personal reasons,” wrote Brito in a blog post.
Jeff Coleman, a crypto enthusiast on a Twitter post explained how Tornado Cash offers anonymity legally. He gave an example of wanting to donate to Ukraine is a great example of a valid need for financial privacy. “Even if the government where you live is in full support, you might not want the Russian government to have full details of your actions.”
Meanwhile, the US government said that the “ultimate goal of sanctions is not to punish, but to bring about a positive change in behaviour.”
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