Tornado Cash Sanction to Have a Chilling Effect on the Crypto Industry – Ran Neuner and Steven Sidley

https://www.youtube.com/watch?v=/UJ5Ek0Hle64

The US Treasury Department recently sanctioned cryptocurrency mixer Tornado Cash over allegations that it was used to launder money. The department alleges, among other claims, that North Korean hackers used Tornado Cash to steal over $455 million.

The sanction, and subsequent arrests of developers linked to Tornado Cash, will have a “massive chilling effect on developers worldwide” in the crypto and DeFi industries, said Steven Sidley, a professor at the University of Johannesburg and head of the university’s Blockchain and CryptoVerse Research Group. The idea that governments don’t want transactions to be anonymous, according to Sidley, is “at the hot molten core of the tension between the individual and the state.”

Ran Neuner, host of Crypto Banter and CEO of Onchain Capital, echoed concerns about the widespread ramifications of the US government’s move. He added that this is the first time a piece of software has been subject to sanctions, saying: “it’s like the US government putting sanctions on the internet.”

Sidley and Neuner spoke with Michelle Makori, editor-in-chief and lead anchor of Kitco News.

Tornado Cash

A cryptocurrency mixer like Tornado Cash allows users to send crypto to others, without revealing individual wallet addresses.

“We put all our money in [a mixer]”, Neuner explained. “And when you want to take money out of it, it pays it from a central Tornado Cash address. So what it does is eliminate the traceability of money.”

The US Treasury Department’s Office of Foreign Assets Control (OFAC) claimed that $7 billion was laundered through Tornado Cash.

“Tornado Cash has been used for $7 billion worth of transactions,” Neuner said. “But Chainalysis, which is probably one of the most recognized companies in the [crypto] world and has also worked with US authorities, made an analysis. What they found is that only 10 percent of transactions in Tornado Cash were used for hacks and illegal activity.”

Sidley added that the sanctions against Tornado Cash were unprecedented, and probably not legal.

“It’s the first time that OFAC has sanctioned something that’s not tied to a human being,” Sidley said. “They’ve sanctioned a piece of neutral code. It’s never been done before, it’s unprecedented in the law. And it’s doubtful that it would survive a court challenge, but that’s not why they did it… The government has gone straight to the center of this case and has basically said that you cannot make anonymous payments.

Arrest of developer

Dutch authorities arrested Tornado Cash developer Alex Pertsev on August 10, in connection with the US government’s sanction against the protocol.

“The worst thing about it is that in Holland a developer was arrested for writing Tornado Cash,” Neuner said. “It’s so absurd it’s actually unbelievable.”

Coin Center, a non-profit organization focused on crypto regulation, has sued the US Treasury Department over the Tornado Cash sanction.

“I think this case will be successful,” Sidley said. “There will be a chilling effect before they are able to win it, which could be months or years. But I think the government will eventually go down… It’s all a travesty. And I have some faith in that legislative justice will prevail in this matter, and that they will withdraw.”

Anonymity and privacy concerns also swirl around the central bank’s digital currencies, which critics claim could be used to track and control individuals.

To find out more about the Tornado Cash sanction, as well as Neuner and Sidley’s thoughts on Central Bank Digital Currencies, watch the video above.

Follow Michelle Makori on Twitter: @MichelleMakori

Follow Kitco News on Twitter: @KitcoNewsNOW