US Treasury Tornado Cash Sanctions Spark Fury, Seeks From Crypto Community

Several lawsuits against the U.S. Treasury Department over its sanctions against Tornado Cash argue that the privacy benefits the cryptocurrency mixer provides outweigh the costs to society of criminal transactions that may result.

Privacy is one of the main selling points for cryptocurrency. The crypto community is outraged that the US Treasury Department’s Office of Foreign Assets Control (OFAC) is targeting a tool that helps provide just that. Tornado Cash stock EthereumETH
transactions – which are usually public – untraceable, obscuring the paths by mixing many transactions together.

The Ministry of Finance claims that criminal groups such as the North Korean hackers Lazarus Group used the mixer to launder money. In announcing the sanctions on August 8, the department wrote: “While most virtual currency activity is legal, it can be used for illegal activity, including sanctions evasion through mixers, peer-to-peer exchangers, darknet markets and exchanges. ” The only nod in the OFAC press release to the issue of privacy was that it is “the purported purpose” of using Tornado Cash.

“I think there is a lot of concern from a variety of industries, not just the digital asset industry, about the implications of the Tornado Cash sanctions. And the legal actions against the Treasury Department by organizations like Coin Center are the manifestation of those concerns,” said Rahsan Boykin, general counsel of Hashflow, a decentralized exchange platform. “There’s a lot of legal precedent around code—specifically, precedent that says code is speech. And then by sanctioning code that’s controlled by nobody, there’s a concern that speech in the digital age could be attacked. After all, Tornado Cash is not a centralized company, but a permissionless protocol that is not controlled by anyone.”

Boykin argues that the main fear for the digital asset industry is that many protocols being sanctioned could prevent developers and those creating decentralized financial applications and blockchains from building permissionless digital systems.

But the trials also raise the question of whether national security is more important than individual rights.

“The lawsuits filed by members of the digital asset community against the Treasury Department over OFAC’s sanctions against Tornado Cash implicate critical issues of national security versus individual rights that people dealing with sanctions have faced for decades,” said Jeffrey Blockinger, General Counsel for Square. “My sense is that the courts are likely to take into account the national security concerns that are likely to be cited by the government in support of its actions.”

In May, OFAC sanctioned cryptomixer Blender.io following the major $620 million Axie Infinity hack that obscured BitcoinBTC
transactions. This was the start of the OFAC sanction mixers before they finally sanctioned Tornado Cash for allegedly laundering $7 billion through the utility since 2019.

Residents of the United States are now prohibited by the sanctions from transacting through the service.