The fight for a "transparent" blockchain
Blocking of the main blockchain transaction anonymization service Tornado Cash
How to find out your address?
Blockchain Mixer is a service for collecting and mixing tokens of different users in order to further anonymize transactions in the blockchain.
The mixing process itself is the collection of tokens from several parties, splitting them into parts, mixing and sending back to the user the equivalent of its amount from different addresses that have nothing mutual with the initial deposit of funds. The whole process takes place according to the algorithm specified by the mixer.
Mixer problems began long before the problems with Tornado Cash
In May, the U.S. government sanctioned Blender, another coin-mixing service, for allegedly helping North Korea launder some of the funds stolen from Axie Infinity, and by August it had made its way to Tornado Cash.
More than $7 billion worth of digital assets have been laundered with Tornado Cash since 2019, according to US officials. The mixing service was used by the Lazarus Group, a North Korean-run hacking collective, to launder hundreds of millions of dollars in funds stolen from Axie Infinity, Harmony and Nomad earlier this year. Ethereum developers spoke in defense of Tornado Cash, arguing that the ban was used by Tornado Cash, both for good purposes and not.
Blocking followed in stages, on the second day the GitHub of the developer Tornado Cash was already blocked. On the same day, Circle (USDC) locked up about 75,000 tokens on Tornado Cash wallets. As a result, the TORN token (the native token of Tornado Cash) fell by 30%.
More than $7 billion worth of digital assets have been laundered with Tornado Cash since 2019, according to US officials. The mixing service was used by the Lazarus Group, a North Korean-run hacking collective, to launder hundreds of millions of dollars in funds stolen from Axie Infinity, Harmony and Nomad earlier this year. Ethereum developers spoke in defense of Tornado Cash, arguing that the ban was used by Tornado Cash, both for good purposes and not.
Blocking followed in stages, on the second day the GitHub of the developer Tornado Cash was already blocked. On the same day, Circle (USDC) locked up about 75,000 tokens on Tornado Cash wallets. As a result, the TORN token (the native token of Tornado Cash) fell by 30%.
Immediately after that, Tornado Cash blocked the Infura and Alchemy platforms. Experts argue that such actions (blocking) are an example of the correct promotion of cryptocurrency, and also that AML services must be on the alert for accurate work.
This was followed by news that Circle, together with Coinbase, would adhere to the Tornado Cash block, adding that Circle began, together with the Coinbase exchange, to block Ethereum addresses associated with the transaction mixing service.
Users also became rather skeptical about Tornado Cash, withdrawing $62 million from the protocol, which is equivalent to 15% of the amount of balances on its addresses. In the first three hours, the outflow amounted to $14.7 million.
This was followed by news that Circle, together with Coinbase, would adhere to the Tornado Cash block, adding that Circle began, together with the Coinbase exchange, to block Ethereum addresses associated with the transaction mixing service.
Users also became rather skeptical about Tornado Cash, withdrawing $62 million from the protocol, which is equivalent to 15% of the amount of balances on its addresses. In the first three hours, the outflow amounted to $14.7 million.
4 days after the blocking, the arrest of the creator of Tornado Cash in Amsterdam followed.
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These advanced technologies, such as decentralized organizations that can facilitate money laundering, are receiving additional attention from the FIOD.
Because of the arrest, users created the DAO, where the vote for control of the treasury funds took place. This vote based on a proposal on the Tornado Cash DAO management page and ended with 100% approval from all 12 participants. These 12 participants contributed 51,000 TORN tokens to complete the vote.
But the attackers don’t sleep, and they didn’t want to sleep. Taking advantage of the moment, an incident occurred during which Tornado Cash sent to 440 addresses the amount of 0.1ETH. One of these wallets turned out to be the address of the founder of TRON, some of them were of the founders of Binance and FTX.
Further, the entire Internet was divided into two parts:
• a group that supports mixers, in particular Tornado Cash;
• a group that is opposed to mixers.
Cobie, Twitter opinion maker and co-host of the “UpOnly” podcast, put it short: “Welcome to the code war.”
Bitcoin maximalists have also joined the debate, with Stephan Livera, host of a popular podcast, calling the events around Tornado "disturbing news."
Further, the entire Internet was divided into two parts:
• a group that supports mixers, in particular Tornado Cash;
• a group that is opposed to mixers.
Cobie, Twitter opinion maker and co-host of the “UpOnly” podcast, put it short: “Welcome to the code war.”
Bitcoin maximalists have also joined the debate, with Stephan Livera, host of a popular podcast, calling the events around Tornado "disturbing news."
Imagine if road workers were arrested because criminals use the roads. Or house curtain installers. Seeking privacy should not be considered a crime.
According to Coin Center Executive Director Jerry Brito and Research Director Peter Van Valkenburgh, OFAC has exceeded its legal authority by adding certain Tornado Cash smart contract addresses to the list of organizations and individuals with whom it is forbidden to do business in the USA (SDN).
On August 20, a rally was held in Amsterdam in support of Alex Pertsev, the developer of the Tornado Cash cryptocurrency mixer, who was arrested last week in the Netherlands.
The authorities suspect him of involvement in money laundering and concealment of criminal financial flows through the service.
According to the initiative group, Pertsev's arrest creates a dangerous precedent for bringing open source software developers to responsibility in case of misuse of these products.
The question arises - is it legal to consider mixers as illegal activities? Maybe the devil is not as scary as hell, and not every mixer can boast of his anonymity.
According to the initiative group, Pertsev's arrest creates a dangerous precedent for bringing open source software developers to responsibility in case of misuse of these products.
The question arises - is it legal to consider mixers as illegal activities? Maybe the devil is not as scary as hell, and not every mixer can boast of his anonymity.
On August 28, 10 days after the rally in support of the developer, it became known that Alexey Pertsev previously worked for a company associated with the Federal Security Service of the Russian Federation (FSB). It is reported by Fortune with reference to the report of the analytical company Kharon.
On September 9, the Coinbase exchange stood up to protect Tornado Cash:
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THE MINISTRY OF FINANCE HAS EXCEEDED ITS POWERS BY ADDING TECHNOLOGY TO THE SANCTIONS LIST, AND NOT AN INDIVIDUAL OR LEGAL ENTITY.
The exchange shares the ministry's commitment to fighting crime, but believes that in this case, its actions harmed innocent people and threatened the future of decentralized finance.
The exchange shares the ministry's commitment to fighting crime, but believes that in this case, its actions harmed innocent people and threatened the future of decentralized finance.
On the same day, bad news also sounded Tornado Cash, in news, it was said that the hackers who hacked DAOMaker a month earlier laundered $500,000 using Tornado Cash.
On September 14, the US Treasury begins easing sanctions against Tornado Cash. The inclusion on the OFAC list and the arrest of Tornado Cash founder Alexei Pertsev in the Netherlands, according to analysts, was the desire of the US Treasury to prevent the laundering of hundreds of millions of dollars stolen by North Korean hackers from the Ronin sidechain.
On September 14, the US Treasury begins easing sanctions against Tornado Cash. The inclusion on the OFAC list and the arrest of Tornado Cash founder Alexei Pertsev in the Netherlands, according to analysts, was the desire of the US Treasury to prevent the laundering of hundreds of millions of dollars stolen by North Korean hackers from the Ronin sidechain.
The sanctions have a secondary effect, causing exchanges and wallet services to block any transactions from the mixer. However, the service was used not only by hackers, but also by large investors who sought to make a number of financial transactions opaque for competitors. Part of the funds went as anonymous donations.
A number of conscientious users have become victims because of trolling by hackers who send small amounts of ETH to well-known addresses of billionaires, corporations and crypto investors in order to lure them into blacklists.
A number of conscientious users have become victims because of trolling by hackers who send small amounts of ETH to well-known addresses of billionaires, corporations and crypto investors in order to lure them into blacklists.
Further, analysts at Chainalysis, namely Jacon Illum, believe that it will take a lot of time for the cryptocurrency community to understand exactly how the blocking of the service has affected the industry. And, although the mixer is still in use, what happened with Tornado Cash will leave its mark on this kind of crypto services. Recall that Chainalysis has previously provided a report on crypto theft and money laundering.
On September 23rd → the Tornado Cash code repositories became read-only, which means that GitHub has not yet restored full functionality. According to Van Loon, these are: …progress compared to an outright ban…
The developer also urged GitHub to cancel all actions and return the previous status to the repositories.
On September 26 → a privileged function was performed from a certain address to withdraw funds from a staking contract on Binance Smart Chain and Avalanche. The crypto assets were then transferred via a bridge to Ethereum, where ERC-20 standard tokens were exchanged for ETH. After that, 1,865 ETH was transferred to the Tornado Cash service for a total amount of more than $2.4 million.
On September 30 → the court rejected Alexey Pertsev's appeal for release, leaving him to serve his sentence until at least the end of November 2022.
On October 2 → a hacker who hacked into the decentralized cross-chain exchange Transit Swap transferred part of the stolen funds to the Tornado Cash mixer and entered into correspondence with the project team.
On this day, an unknown person withdrew assets from Transit Swap for about $ 21 million. Later, the exchange team reported that the hacker returned 70% of the stolen funds and invited him to get in touch.
On October 3 → the attacker reimbursed the platform for another 2,612 BNB (~$750,000) and sent a message with a signature to the transaction. At the same time, he made 40 transfers of 100 BNB to Tornado Cash.
The developer also urged GitHub to cancel all actions and return the previous status to the repositories.
On September 26 → a privileged function was performed from a certain address to withdraw funds from a staking contract on Binance Smart Chain and Avalanche. The crypto assets were then transferred via a bridge to Ethereum, where ERC-20 standard tokens were exchanged for ETH. After that, 1,865 ETH was transferred to the Tornado Cash service for a total amount of more than $2.4 million.
On September 30 → the court rejected Alexey Pertsev's appeal for release, leaving him to serve his sentence until at least the end of November 2022.
On October 2 → a hacker who hacked into the decentralized cross-chain exchange Transit Swap transferred part of the stolen funds to the Tornado Cash mixer and entered into correspondence with the project team.
On this day, an unknown person withdrew assets from Transit Swap for about $ 21 million. Later, the exchange team reported that the hacker returned 70% of the stolen funds and invited him to get in touch.
On October 3 → the attacker reimbursed the platform for another 2,612 BNB (~$750,000) and sent a message with a signature to the transaction. At the same time, he made 40 transfers of 100 BNB to Tornado Cash.
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