Tornado Cash Sanctioned! The END of Crypto Privacy!?

Last week we witnessed one of the Biggest attacks to date on crypto Privacy that came in the form of the us Treasury’s sanctioning of tornado cash Now this led to protocols blocking Addresses funds being seized and one of The tornado cash developers being Arrested but this story is far from over And its implications for the broader Crypto industry cannot be overstated Today i’m going to give you everything You need to know about the situation and What it could mean for you [Music] On the 8th of august we learned that the Treasury’s office of foreign assets Control ofac had sanctioned the tornado Cache eth mixing protocol a number of Addresses associated with the mixer Containing around 424 million dollars Worth of crypto were also sanctioned now For those unfamiliar tornado cache has Long been one of the most well-known Mixing protocols on ethereum and what it Would essentially do is obscure Transaction history This means that it would anonymize Transactions and remove all traces of Where funds had originated from This was a privacy tool that was used by Thousands of people in the d5 space Unfortunately it was also used for Laundering the proceeds of cybercrime And that is the use case that the

Treasury honed in on It stated that tornado was a favorite Tool of north korean hackers and had Been used to launder more than 7 billion Now on a side note that number is highly Inflated for reasons i’ll get into later Anyways the moment tornado was Sanctioned its website was taken down And the code disappeared from github not Only that but one of the contributors Had his github account banned Circle blacklisted any usdc that was in The affected wallets and rpc providers Such as infurera and alchemy started Blocking calls to the tornado cash smart Contracts And if that wasn’t bad enough a number Of decentralized applications also began To restrict access to their front ends For wallets which had interacted with The tornado cash smart contract For example both arve and dydx reported That they were blocking access from Those wallets which had interacted with Tornado cache and even those that had Received funds from it In the case of dydx users who had Immaterial amounts but who had Associated with tornado cash in the past Were also blocked Things were further complicated by the Fact that someone in the community Decided to start dusting a number of Public etherdresses of celebrities in

The space in other words they sent a Number of small transactions to hundreds Of known wallets associated with eth ens Addresses the likes of brian armstrong Jimmy fallon and steve aoki were Potentially committing sanctions Violations by appearing to be doing Business with a sanctioned protocol What’s even crazier than that is that Some of those users who were hit with The dust found that they were not able To interact with ave’s front end these Included the likes of anthony sasano and Justin’s son But perhaps the most chilling Development at least so far was the Arrest by dutch police of one of tornado Cash’s developers alexei percev was Picked up by the dutch fiscal Information and investigation service Fiod Two days after tornado cash was Sanctioned Now the exact reasons for his arrest and What he is actually being accused of Remain unknown But if it’s just because he wrote some Code then this is a dangerous precedent For a number of reasons which i’ll Explore a little later on The first thing that we need to be Asking ourselves however is whether These actions by the treasury were legal Allow me to explain

This is the first time that the treasury Has effectively sanctioned a tool a Piece of open source code that exists on The ethereum blockchain and which can be Used by anyone for any purpose be it Good or bad Given that it is open source that means It is akin to the likes of a public good So that could be analogous to a road or A park so it would be as if ofac were to Sanction the use of an interstate Highway because drug dealers drive on it Or if you wanted a more relevant example It would be like the treasury Sanctioning the tcpip protocol because Hackers use the internet for hacking It’s impractical Moreover just because a tool is Sanctioned does not mean that the Criminals are not going to use it that’s Because criminals by definition have Zero consideration for the law They’re likely to continue using the Smart contract as they see fit Then there is the very important Question of whether sanctioning a piece Of code violates the first amendment Allow me to explain You see thanks to a 1996 case bernstein Versus the doj it’s been established That code should be considered speech And if it is indeed speech then it Should be protected by the first Amendment by sanctioning this tool the

Treasury is effectively saying that the Speech itself is illegal now there is a Very real possibility that should Someone want to challenge these Sanctions they could have a strong case In court the coin center lobbying group Has stated that it plans to moreover if Indeed the only thing the developer did Was write code then that could also be Seen as a violation of free speech Now i’m sure that more astute legal Minds than mine are going to have a Field day with this case but if there Are any legal challenges mounted it will Take a long time for them to be settled Until that time the sanctions will have To be enforced and that means that all Those d5 projects and protocols will Continue blacklisting the smart contract Less the teams behind them fancy a date With a prison cell Apart from the legal aspect there is the Practical consideration for how this Will be enforced too remember criminals Are criminals and they will continue to Use it the code is open source and free To fork Should that happen the treasury will end Up playing whack-a-mole with a bunch of Newly deployed smart contracts Not only that but those other crypto Projects and protocols are also going to Have to monitor not only the funds that Are coming from the original tornado

Cash smart contract but also from all The forked ones This could quickly become a logistical Impossibility and projects will always Have to worry whether any if they handle Has gone through a forked version of the Original tornado cache And speaking of which there’s also the Broader question around who as a result Of these sanctions could technically Find themselves in violation of ofac Rules If someone sends eth from the tornado Contract to you does that mean you are In violation i mean it’s not like you Can refuse to receive it as we saw with Those dusting attacks protocols Themselves have started blocking some of These dusted addresses Could the feds start going after any of Those wallets that have received tornado Tainted eth could we soon see jimmy Fallon dragged away in cuffs It’s not even about addresses that have Received funds what about liquidity Providers on the decks what happens if They unknowingly convert eth that has Been through tornado cache into some Other cryptocurrency are they thus Engaging with sanctioned entities What about ethereum miners what Liability do they have if they were to Propagate a block that included a Tornado cash transaction does that mean

That they could also be flirting with Illegality Or how about that eth that sent to the Eth2 staking contract what would that Mean for proof-of-stake ethereum what Happens once the transition to Proof-of-stake is complete will Validators have to decide to censor Certain transactions that their Jurisdiction deems as illegal could they Get slashed So you can see how quickly this grows Out of control The crypto space has just seen a massive Can of worms opened up right in front of It Now of course there will be some who Claim that these actions are justified Swiped funds from some of the most high Profile crypto hacks of the past two Years have gone through tornado this was Seen in the wake of the 100 million Dollar harmony hack that took place a Few weeks ago There are plenty of people who have been Asking whether there are really any Legitimate use cases for tornado cash a Tool designed specifically for privacy Essentially this all comes down to the Broader question of why someone would Want to have financial privacy in the First place As the old saying goes if you have Nothing to hide why do you worry

Well for plenty of reasons as it happens Firstly because blockchains are public And transparent everyone can see exactly What your wallets are doing and what you Could be buying or investing in This is not the case with tradfy where Your bank account balances and spending Habits aren’t public The moment they are public and someone Can attach it to your irl identity it Opens you up to potential physical harm If criminals ever wanted to get access To your crypto Or perhaps you wanted to donate crypto To a cause which may get you into some Serious trouble in your country for Example what happens if you were a Citizen of iran or venezuela who wanted To donate to a journalist or newspaper That the government didn’t like Blockchain is immutable you’d live in Constant fear of being placed on a list Of some kind or how about if you were a Russian who wanted to donate to ukraine Not something that you would like the Fsb to know about On the flip side you could be a Ukrainian refugee wanting to hide where You were getting your donations from This is something that vitalik himself Highlighted earlier this year when he Donated to the country Beyond such high stakes implications it Could also just be a situation in which

You don’t want people you interact with On chain to know what you do with your Money For example let’s assume that you get Paid in crypto that means that your Employer will be able to see exactly What you do with that money and what You’re buying Or perhaps you’re buying something from An online merchant and you don’t want Them to know what else you’ve been Spending the money on or how much you Have just imagine the targeted Advertising Ironically this would be a lot easier to Achieve when paying with a completely Open and permissionless form of money Now these are all reasons as to why Someone would want to anonymize their Transaction history now some might say You could just use a centralized Exchange however the whole point of Decentralized and censorship resistant Currency is that you don’t have to rely On a centralized gatekeeper moreover Some people are just not comfortable Having others holding their private keys And can you blame them It was also pretty disingenuous for the Treasury to claim in its press release That seven billion dollars was laundered Through tornado cash That was the total volume of Transactions many of which would have

Been for such perfectly legitimate Reasons as i have just talked about in Fact according to stats from the Blockchain sleuths over at chainalysis Only about 17 of the funds that flowed Through the protocol were tied to Sanctioned activity The vast majority 50 Was related to defy activities That means that these users were thrown Into the laundering bucket by the Treasury when all they were really doing Was trying to anonymize their funds So this raises the question of what all This means for crypto privacy and heck Privacy in general Well it’s quite clear that privacy is Under attack Yes this move by the treasury was Prompted by concerns around north korean Hacking but the tool used is so blunt For the effect it’s trying to achieve But you have to wonder whether the folks At ofac gave any thought to collateral Damage Many have drawn parallels with the early Crypto wars for example for those Unfamiliar this was when the u.s Government arrested phil zimmerman a Developer who distributed pgp Cryptography online they accused him of Quote munitions export without a license Yes that’s right they contended that his Pgp encryption system was a weapon that

Could be used by adversaries i mean heck Why on earth would someone want privacy Online only criminals and enemy Governments would want to encrypt their Communications Well it turned out that there were many Many practical uses for encryption Online and various encryption standards Have helped power the multi-billion Dollar e-commerce revolution that we’ve Experienced over the last 20 years What was initially considered a way to Hide state secrets has in fact allowed Legal commerce to thrive i’ll leave some Resources in the description for you Where you can get some more information On the crypto wars it is a fascinating Subject Back to cryptocurrency though and many Have also been wondering why tornado Cash got hit and not other well-known Crypto projects like monero for example Well my assumption is that mixers are Viewed with a lot more suspicion than Privacy by default cryptocurrencies People could see on chain how the Lazarus group was laundering its funds Through the tool This isn’t something that you can easily Observe with monero Moreover the mere volume of funds that Were running through tornado cache made It a prime target But this doesn’t mean that monero isn’t

Being studied and tracked i can only Imagine that there is a strong State-backed effort to crack the ring Signature technology it’s famous for This is perhaps one of the reasons why The monero devs pushed some new upgrades To the protocol only a few days ago Now some are advancing another argument And that’s that this could be a good Thing for crypto in the long term These include the likes of kevin o’leary Aka mr wonderful He said in a recent youtube video that Cracking down on quote crypto cowboy Culture was needed if we wanted to see Widespread institutional adoption that We needed a quote rules-based Environment in order to attract real Institutional capital into the digital Asset industry these seem to be fair Points institutions do want a more Transparent and well-regulated crypto Space before they’ll feel comfortable Throwing large sums of money into it For them privacy isn’t a major concern Money is Financial freedom isn’t why so many So-called decentralized web 3 projects Are getting multiple billions in vc Funding If the name of the game is mass adoption Through the paths of least resistance Then a more centralized and controllable Defy is the way

However is that the defy we want do we Want tradfy larping as defy to achieve Our goals of mass adoption Not me personally but you may have a Different perspective Okay time for some of my closing Thoughts on the matter now firstly i Think we can all agree that those who Engage in criminality should be brought Down the laundering of ill-gotten gains Be it through a bank account or a d5 Protocol should be prosecuted to the Full extent of the law Those wallets identified as being linked To criminal activity should also be Sanctioned and flagged and this is Exactly what the treasury had been doing Prior to the tornado cash sanctions Being imposed And it’s not as though this approach Wasn’t enjoying some success thanks to Some pretty advanced tools and tracking Services law enforcement is able to Catch such miscreants more effectively Than they could in the past they also Have the power of subpoenas and search Warrants quite simply they didn’t need To take this action against tornado cash As i’ve pointed out the net result is a Loss of privacy for some and a massive Mess up for all in the defy space As for those north korean hackers They’ll just switch to one of the other 100 or so laundering techniques that

They were using long before tornado came About Moreover given that tornado cache is Nothing but code it’ll be hard to Permanently outlaw it’ll be a game of Whack-a-mole it won’t have the desired Effect and the collateral damage is Already permeating through the crypto Industry There are also all the legal questions Raised by these actions is this a breach Of the first amendment and what happens To any of those citizens who have used It in the past or anyone that interacts With it it’s a legal quagmire no doubt About it There may be legal challenges and Perhaps this could turn into a new Crypto war one with a net positive Long-term impact as we saw with the First crypto war or perhaps the large Centralized institutions will conform And will have a more amenable but less Free crypto space One thing this does show us however is How centralized the crypto space has Become and how dependent we are on Certain services and dapps it also Demonstrates how willing certain Developers are to really embrace Decentralization i mean when you have The threat of sanctions violation over Your head it changes your risk calculus I don’t know how many dap developers

Would be idealistic enough to want to Risk 30 years in prison One thing is for certain those tornado Cash sanctions could have significant Implications for the crypto industry Some of which will only become apparent Further down the line whatever happens Though it’s a story we will be keeping a Very close eye on and we’ll be updating You folks every step of the way And that’s it for our video today on Tornado cache but i would love to get Some of your all-important feedback so What are your thoughts on the sanctions Do you think they’re going to have the Desired effect and do you think it will Make the space more amenable for Institutions i’d love to know so get Tapping down below While you’re down there you can also Find links to all the other places you Can follow me apart from youtube these Include my telegram twitter tik tok and Instagram and of course the creme de la Creme my weekly newsletter Here i share upcoming videos market Updates and a breakdown of my personal Portfolio Also if you’re looking for some of the Best discounts and promos in the space Then touch base with my deals page Discounts that only viewers of this Channel get to enjoy So all of which you seek is there at the

Tippy top of that description box and Finally if you found this video fire Then fire up the likes don’t forget to Subscribe to make sure you’re in line to Receive my latest crypto vibes oh and Hit that bell as well we don’t want it To get lonely That’s it for today my fellow crypto Fans but i’ll see you all again real Soon [Music] You