Tornado Cash Explained

Tornado Cash
Developer:Roman Semenov, Alexey Pertsev, Roman Storm
Released:17 December 2019
Latest Release Version:v3
Latest Release Date:16 December 2021
Status:Discontinued
Programming Language:Solidity
Platform:Ethereum Virtual Machine
Genre:Cryptocurrency tumbler
License:Open-source licenses
Website: (blacklisted)

Tornado Cash (also stylized as TornadoCash) is an open source, non-custodial, fully decentralized cryptocurrency tumbler that runs on Ethereum Virtual Machine-compatible networks. It offers a service that mixes potentially identifiable or "tainted" cryptocurrency funds with others, so as to obscure the trail back to the fund's original source. This is a privacy tool used in EVM networks where all transactions are public by default.[1]

In August 2022, the U.S. Department of the Treasury blacklisted the service, making it illegal for US citizens, residents and companies to use. The project's web domain and GitHub accounts were also shut down, and one of the developers arrested.

The project is governed through a decentralized autonomous organization (DAO) and uses the $TORN token as a voting system for protocol updates.[2]

Functionality

Tornado Cash uses multiple smart contracts that accept different quantities of ETH and ERC-20 deposits.[3] These deposits can later be withdrawn to a different address by providing a cryptographic proof, hence breaking the link in the chain between the sender and the recipient. Zero-knowledge proofs (in particular zk-SNARKs[4]) are used to increase privacy, as there is no way to link a withdrawal to its deposit.

History

On 8 August 2022, the Office of Foreign Assets Control of the U.S. Department of the Treasury blacklisted Tornado Cash, making it illegal for United States citizens, residents, and companies to receive or send money through the service.[5] The Treasury Department accused it of laundering more than $7 billion in virtual currencies, including $455 million believed to have been stolen in 2022 by the Lazarus Group, a hacking group associated with the government of North Korea.[6] [7] The same day, the domain used by the project was taken down, and GitHub removed the Tornado Cash repository and suspended the developers' accounts.[8]

Circle, the company behind USD Coin, froze about $75,000 in USDC from Ethereum addresses belonging to the mixer.[9] [10]

On 10 August 2022, Tornado Cash developer Alexey Pertsev was arrested in Amsterdam on the suspicion of "involvement in concealing criminal financial flows and facilitating money laundering through the mixing of cryptocurrencies through the decentralised Ethereum mixing service Tornado Cash."[11]

The Electronic Frontier Foundation on April 11, 2023, announced that it was opposed to the legal actions stating: "governmental actions targeting the publication of code based upon its topic necessarily target speech" as well as raising concerns about financial privacy.[12]

On May 21, 2023, a hacker used a malicious proposal to gain full control of Tornado Cash's DAO.[13] The hacker put forth a proposal for the DAO to vote on with hidden code that would issue the fraudulent voting tokens to them. The vote was passed, giving the hacker enough voting tokens to control any future proposals. On May 26th the hacker effectively relinquished control, but had converted a portion of the stolen governance tokens to Ether valued at around $900,000, and laundered them through the service.[14]

On August 23, 2023, two more Tornado developers, Roman Storm and Roman Semenov, were charged with assisting in money laundering in the amount of $1 billion. Roman Storm was arrested in Washington State.[15] [16] [17]

On May 14, 2024, Alexey Pertsev was sentenced to 5 years and 4 months in prison for his role in Tornado Cash development.[18]

External links

Notes and References

  1. Web site: Page . Carly . Anita Ramaswamy . 8 August 2022 . US Treasury sanctions Tornado Cash, accused of laundering stolen crypto . . https://web.archive.org/web/20220808164029/https://techcrunch.com/2022/08/08/treasury-tornado-cash-laundering-stolen-crypto/ . 8 August 2022.
  2. Web site: Dale . Brady . 8 August 2022 . Ethereum's best known privacy tool falls under U.S. sanctions . . https://web.archive.org/web/20220809135934/https://www.axios.com/2022/08/08/ethereums-best-known-privacy-tool-falls-under-us-sanctions . 9 August 2022.
  3. Ramakrishnan . Vidya . 18 August 2022 . Tornado Cash Ban Raises Questions in the Crypto Community . . Los Angeles . https://archive.today/20221012192842/https://www.investors.com/news/tornado/ . 12 October 2022.
  4. Web site: TornadoCash whitepaper v1.4. https://web.archive.org/web/20211026053443/https://tornado.cash/audits/TornadoCash_whitepaper_v1.4.pdf. Tornado Cash. dead. 26 October 2021.
  5. Web site: Cyber-related Designation. 8 August 2022. U.S. Department of the Treasury. 10 August 2022. 10 August 2022. https://web.archive.org/web/20220810105627/https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20220808. live.
  6. Web site: Treasury Dept. blacklists crypto platform used in money laundering.. David. Yaffe-Bellany. 8 August 2022. The New York Times. 9 August 2022. 9 August 2022. https://web.archive.org/web/20220809005433/https://www.nytimes.com/2022/08/08/technology/treasury-blacklist-crypto-tornado-cash-laundering.html. live.
  7. Web site: U.S. Sanctions Crypto Platform Tornado Cash, Says It Laundered Billions. Ian. Talley. Dustin. Volz. 8 August 2022. The Wall Street Journal. 9 August 2022. 9 August 2022. https://web.archive.org/web/20220809010324/https://www.wsj.com/articles/u-s-sanctions-virtual-currency-mixer-tornado-cash-11659971832. live.
  8. Web site: GitHub courts controversy by suspending Tornado Cash developers and reneging on cookie commitments. 10 August 2022. The Register. Thomas. Claburn. 10 August 2022. 10 August 2022. https://web.archive.org/web/20220810105621/https://www.theregister.com/2022/08/10/github_tornado_cookies/. live.
  9. News: Sun . Mengqi . 12 August 2022 . Tornado Cash's Sanctions Show Shift in Crypto Regulatory Focus . en-US . . 16 August 2022 . 0099-9660 . 16 August 2022 . https://web.archive.org/web/20220816010546/https://www.wsj.com/articles/tornado-cashs-sanctions-show-shift-in-crypto-regulatory-focus-11660336224 . live .
  10. Web site: 8 August 2022. Tornado Cash crackdown by Treasury puts honest crypto investors at risk of criminal exposure. . 18 August 2022. 18 August 2022. https://web.archive.org/web/20220818020318/https://www.cnbc.com/2022/08/08/tornado-cash-crackdown-by-treasury-punishes-honest-crypto-investors.html. live.
  11. Web site: Arrest of suspected developer of Tornado Cash. 12 August 2022. Fiscal Information and Investigation Service. 12 August 2022. 12 August 2022. https://web.archive.org/web/20220812105846/https://www.fiod.nl/arrest-of-suspected-developer-of-tornado-cash/. live.
  12. Web site: An Update on Tornado Cash. 11 April 2023. 28 August 2023.
  13. News: 2023-05-21 . Sanctioned Crypto Mixer Tornado Cash Hijacked By Hackers . en . Bloomberg.com . 2023-05-22 . 22 May 2023 . https://web.archive.org/web/20230522140106/https://www.bloomberg.com/news/articles/2023-05-21/sanctioned-crypto-mixer-tornado-cash-hijacked-by-hackers . live .
  14. News: 2023-05-29 . Hacker Who Robbed Crypto Laundering Service Tornado Cash Uses It to Mask Loot . en . Bloomberg.com . 2023-11-19 . 29 May 2023 . https://web.archive.org/web/20230529204529/https://www.bloomberg.com/news/articles/2023-05-29/hacker-who-robbed-crypto-laundering-service-tornado-cash-uses-it-to-mask-loot . live .
  15. News: 2023-08-23 . Tornado Cash Founders Storm, Semenov Charged by US in Money Laundering Scheme . en . Bloomberg.com . 2023-08-24 . 24 August 2023 . https://web.archive.org/web/20230824163420/https://www.bloomberg.com/news/articles/2023-08-23/tornado-cash-founders-charged-by-us-in-money-laundering-scheme . live .
  16. Web site: 2023-08-23 . Southern District of New York Tornado Cash Founders Charged With Money Laundering And Sanctions Violations United States Department of Justice . 2023-08-24 . www.justice.gov . en . 24 August 2023 . https://web.archive.org/web/20230824133951/https://www.justice.gov/usao-sdny/pr/tornado-cash-founders-charged-money-laundering-and-sanctions-violations . live .
  17. News: 2023-08-07 . Tornado Cash Co-Founders Accused of Helping Cybercriminals Launder Stolen Crypto . 2023-08-08 . fbi.gov . en . 16 February 2024 . https://web.archive.org/web/20240216201439/https://www.fbi.gov/news/stories/tornado-cash-co-founders-accused-of-helping-cybercriminals-launder-stolen-crypto . live .
  18. News: Tornado Cash co-founder convicted of laundering $1.2 billion by Dutch court . Reddick . James . 14 May 2024 . 20 May 2024 . 20 May 2024 . https://web.archive.org/web/20240520173209/https://therecord.media/tornado-cash-money-laundering-verdict-netherlands-alexey-pertsev . live . TheRecord.media .

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