The U.S. Treasury Department’s Office of Foreign Asset Control (OFAC) has banned Tornado Cash, an ethereum-based privacy-enhancing mixing service. The ban resulted in Github suspending contributors to the Tornado Cash project.
The effect of the ban goes beyond Github account suspensions, as OFAC released a list of blacklisted addresses associated with the service, leading to $437 million worth of crypto assets being frozen.
Tornado Cash’s founder, Roman Semenov, took to Twitter to express his disagreement.
“My Github account was just suspended. Is writing an open source code illegal now?” Semenov wrote on his account.
GitHub had reportedly also removed Tornado Cash code from its system. Patrick Collins, a smart contract developer, said that the action was “much worse than just sanctioning a website”.
Despite that, a Tornado Cash representative assured the public that the code removal “doesn’t change anything for Tornado Cash contracts” as the contracts utilize the Ethereum blockchain.
Meanwhile, the crypto units frozen include USDC, USDT, ETH, and WTBC. Circle immediately froze the 75,000 USDC units linked to the blacklisted address. This platform also froze 149 USDC donations to the Tornado Cash project.
Circle just frozen 75,000 USDC belonging to unsuspecting Tornado users, as well as 149 USDC donated to the project. pic.twitter.com/GBS41FtZvB— banteg (@bantg) August 8, 2022
Earlier this year, Circle's chief executive officer Jeremy Allaire explained that the company developed a “blacklist” function to block addresses whenever it is “legally required” to do that.
The custodian of WTBC, Tether and Bitgo, are likely to freeze all the smart contracts associated with Tornado Cash as the ecosystem allows them to do so. This action will render coins with those smart contracts worthless.
A Twitter user Bowtiediguana suggested liquidity providers to pull out from the decentralized exchange (DEX) “immediately”. When more unit custodians freeze assets related to the mixing service, these providers might hold coins that no longer have values.
About the ban
OFAC announced the ban on August 8, preventing U.S citizens and organizations from utilizing the mixing platform in transactions. In its official statement, OFAC reasoned that the mixing service had been used “to launder greater than $7 billion price of digital foreign money since its creation in 2019.”
A recent high-profile case linked Tornado Cash to a hacking syndicate from North Korea, the Lazarus Group. In April this year, Tornado Cash announced via its social media that it has blocked addresses used by the syndicate.
Tornado Cash is a protocol that enables people to transfer crypto assets without revealing their addresses. It disrupts the link between sender and recipient’s addresses on the Ethereum blockchain.
Reaction to the ban
Members of the crypto community have responded to the ban. Ethereum proponent Ryan Adams dubbed OFAC’s move as “an attack on crypto”.
“Today the US sanctioned Ethereum addresses associated w/ a privacy service called Tornado cash,” Adam wrote on his social account.
“Circle immediately froze the USDC in those accounts. GitHub suspended contributors to Tornado. If you were waiting for the opening shot of big brother’s assault on crypto this was it.”
Erik Voorhees, Shapeshift founder, said that the action only hurt “law-abiding Americans” as the “bad guys” will find any means to perform their actions.
Some people in the community also criticized Github for deleting Tornado Cash’s code from the system. They said that the source code is “a speech” and thus to be protected by the First Amendment. Collins even said that the Tornado Cash developer needed to take legal action regarding this issue.