Will Tornado Cash end the privacy of cryptocurrencies?

Most cryptocurrencies no longer provide privacy, which knowledgeable people know very well. One of the last bastions of anonymous transactions was open source Tornado Cash app. However, this stronghold also fell. In the US, the company was blacklisted, in the Netherlands its main developer was arrested, and subsequent blockchain projects prevent its use. Cryptocurrency enthusiasts are roaring that this is an attempt on freedom, but is it really? Maybe thanks to this, blockchain technology will be able to defeat the next demons of fear?

How does Tornado Cash work?

First, a few words of introduction. For those who have been on the cryptocurrency market for years and for those who are just starting to be interested in it. Tornado Cash was created on the blockchain Ethereum like smart contracts available to everyone. Thanks to them, you can send cryptocurrencies in an even more encrypted way. They do not go directly from the A to B wallet, but are transferred from another, anonymous wallet.

What is Tornado Cash used for?

And here is the dog buried. The intention of technology developers is to increase privacy. Cryptocurrency wallet addresses are commonly known. Especially public figures who create their own projects or have been operating on the market for years and value transparency. It is enough to show your transaction or transfer funds to someone, and our address can be known to everyone. 

Theoretically, knowing a sequence of random characters does not change anything. Illustrative: if everyone knows that I have a brown leather wallet, no one will know whether I have gold cards from several banks or business cards of companies providing quick loans. It is the same with the wallet address, but only seemingly. Market participants can track the movements of individual portfolios and find out that, for example, a well-known investor buys a cryptocurrency. 

By doing this through Tornado Cash, we cover our tracks and can invest or trade with others without any stress. The fact that this solution is used by honest people is best evidenced by the statement of Vitalik Buterin, the founder of Ethereum, who openly admits that he himself has used Tornado Cash many times.

Illegal practices on Tornado Cash

However, Tornado Cash is like nuclear fission technology, which can be used to provide cheap energy, but also be transformed into a deadly bomb. The advantages of Tornado Cash were quickly used by criminals who wanted to maintain anonymity. 

In the report Chainalysis we read that 10,5% of the $ 7 billion in this program is money from illegal sources. Another 17,7% came from addresses that were later subject to sanctions. The report mentions specifics: it is USD 96 million from the hacking attack on Harmony Bridge or USD 455 million from the Lazarus group hacking related to North Koera. 

And that could not be liked by anyone. And it quickly attracted the attention of the relevant services.

30 years in prison for working with Tornado Cash

Tightening the loops around Tornado Cash's neck began in August 2022. It was then that the US government agency OFAC entered Tornado Cash on the sanctions list, which appeared on the Specially Designated Nationals And Blocked Persons List. There are horrendous penalties for cooperating with companies from this list in the USA: up to 30 years in prison and fines up to USD 10 million.

Programmer on the services of Russian agents?

But that's not all. An international investigation also began immediately, the result of which was the arrest of the programmer Tornado Cash by the Dutch police. Now, however, he needs to prove that he has committed a crime, and - as we wrote earlier - Tornado Cash was created and initially used only by people who simply cared about the privacy of their wallets and transactions. However, the first leaks from the services soon appeared. Each subsequent one is more sensational. First, he was to cooperate with criminals, then he was to launder dirty money himself, and finally a real bomb was detonated. Cooperation with the FSB, i.e. Russian intelligence, was added to the potential allegations.

We didn't have to wait long for the effects. Subsequent protocols began blocking Tornado Cash related wallets. They have already done so Aave, Circle, and Github removed the Tornado Cash source code from the site and suspended the developers' account. 

Positive or negative effects of decommissioning the application?

Recently gaining popularity, cryptocurrency mixers and applications that allow to encrypt cryptocurrency transactions, thus received a huge blow at a time when it seemed that they were becoming another important link in the blockchain market. 

However, it is worth asking yourself whether it is good or bad. The facts are that the work of eminent programmers was also used for money laundering. But aren't traditional exchange offices, restaurants, discos etc. also used? Can printers counterfeit certificates, money and documents? Of course they can. Only the cryptocurrency market and the accompanying fear of the unknown are at such a stage of development that it is worth considering whether to sacrifice a few soldiers, or even a battle, to win the war for the adoption of cryptocurrencies and introducing them to the mainstream. By removing all the debatable projects along the way, which can then be refined and even resurrected in their current form.