Aug 15, 2022 at 05:07Tornado Cash was added to the US Treasury Department’s OFAC lists a couple of days ago, prohibiting companies from interacting with the service. The platform mixes ETH transactions to hide the direct relationship between the Sender and the Receiver of the transactions, which has been actively used by all kinds of hackers and criminals. The following is a continuation of this story, talking about new arrests and blockings that followed the banning of the service.
The current state of the service
We have already written a report about the ban on this anonymizing mixer; here, you can read the details. In this article, we will add new details to that news story, three days after Tornado Cash was banned.
We will highlight the most important points that are defining:
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- The U.S. sanctions have a dangerous “secondary effect” — all counterparties who continue to use Tornado Cash’s services could be put on the block list. And this is far from a joke, given that all financial flows related to this service are claimed to be monitored.
- Immediately after these news, the Torn mixer token dropped 45%. Stablecoin issuer USDC also blocked $75,000 in wallets, after which the service’s assets shrank another 15% due to a small customer outflow.
- Nevertheless, after three days, the service firstly works, and secondly, the volume of transactions remains at a relatively normal level. For example, on the next day after the sanctions were announced, Tornado Cash processed $3 million worth of transactions per day. Given the general decline in cryptocurrency market activity, these figures are close to the average daily values of the mixer’s work volume this summer.
Arrests
The biggest news at the moment is the arrest of one of the main creators of this service in the Netherlands, supposedly Alex Pertsev, also known as CEO at Peppersec.
Sometime later, it was reported that in other countries, some other members of Peppersec who took part in the creation of Tornado Cash were arrested. According to unconfirmed information, Roman Panchenko (aka Storm) was arrested in Seattle and Nikita Dementiev in Tallinn. According to unofficial information, all other members of the team are now in Russia.
Blocking
Accounts related to Tornado Cash are also blocked by some third-party service providers. In our last article, we listed most of the blockings.
One of the most interesting last cases was the decision of the decentralized exchange dYdX to block all the accounts of Tornado Cash users.
In doing so, the exchange mistakenly blocked several accounts of random users. dYdX has already acknowledged that these users did not interact directly with Tornado Cash and may not have been aware of the origin of the funds transferred to them (which had previously passed through the mixer).
Community reaction
Yesterday someone anonymous started sending small amounts of dirty ETH to the public addresses of celebrities. Allegedly, this is done to make the authorities’ actions seem absurd because then any arbitrary person could get arrested.
It’s hard to see what kind of consequences this will have for unwitting recipients of such transfers, but purely formally, they could be subject to secondary sanctions.
Someone is out dusting a bunch of wallets from Tornado with 0.1 ETH lmaaaaooooohttps://t.co/3NfLuz9qYF pic.twitter.com/xsmiyM8sxq
— joseph.eth (@josephdelong) August 9, 2022
For example, here’s how someone else comments on this poisoned mailings strategy:
The gag effectively points out the absurdity of such sanctions for users receiving funds from blacklisted addresses that they have no power to decline. The open nature of crypto is designed to cut out intermediaries, unlike the traditional financial sector that would use banks and other financial institutions to act as gatekeepers against such transactions.
Another user is ironic about the actions of the authorities:
I’m sure the bad guys will stop using Tornado Cash because it’s “illegal”.
Just like they don’t use illegal weapons, smuggle illegal drugs, or illegally launder money through every means they can find.
Others claimed the sanctions were unlawful, citing numerous federal court cases that have previously established “source code as speech” protected by the U.S. Constitution:
After OFAC added the Tornado Cash mixer smart contract to the Specially Designated National list, its source code disappeared from GitHub. “source code is speech.” Bernstein v US (ND Cal. 1996)https://t.co/vZeFe3mRd7
— Kurt Opsahl | Zcon, BSides, BH, DEFCON (@kurtopsahl) August 8, 2022
Nevertheless, Tornado Cash, with some limitations, continues to operate in a fully automatic mode. Perhaps the arrest of its developers will allow the authorities to stop its functioning (by gaining access to the arrested developers).
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