Not long ago the cryptocurrency community received some very bad news. From the title of the article it can be guessed that it is about the Tornado Cash mixer and related sanctions. As you may know, the US Treasury Department has added Tornado Cash to the sanctions list. It would seem that for regulators this is not the first such measure in relation to some cryptocurrency project. However, there can be serious consequences for the crypto industry. Let’s go through it all in order.
About Tornado Cash
Tornado Cash is a protocol that runs on the Ethereum blockchain. The protocol appeared in the summer of 2019. The startup has attracted a lot of attention from the community. It has even attracted the interest of Vitalik Buterin, one of the creators of the Ethereum digital asset.
Tornado Cash has its own native token, TORN.
One may wonder what the new cryptocurrency project’s popularity is all about. The answer lies in the fact that Tornado Cash is a cryptocurrency mixer. In addition, many people prefer to remain anonymous when working with cryptocurrency, Tornado Cash just might give that anonymity.
In order to maintain confidentiality, holders of digital assets could use Tornado Cash. That is, if you have some amount of, for example, Bitcoin, and you find a buyer who wants to transact anonymously, the best way to do so is to use a cryptocurrency mixer. In this case, you can transfer Bitcoin to Tornado Cash. The protocol will conduct the transaction to the buyer, already using the new address.
In this way both parties of the transaction remain anonymous.
It begs the question: why is such a seemingly promising project, which was in demand among the cryptocurrency community, on the Ministry of Finance’s sanctions list?
The answer lies in the anonymity of the transactions. It is no secret that along with honest people in the industry, it is not uncommon to find scammers and fraudsters. There are such unscrupulous people in any industry, especially when it comes to finance.
Many cryptocurrency exchanges have had to introduce identity verification procedures to ensure that illicit funds are not laundered through them. Where there is anonymity, crime is likely to emerge.
As we remember from the example above, it was possible to remain anonymous using the Tornado Cash protocol. There is the answer: the regulator did not like it. The US Treasury Department suggested that fraudsters could easily launder money or engage in other financial scams using the cryptocurrency mixer.
How could sanctions threaten the cryptocurrency industry?
There is a great deal of expert opinion that sanctions against Tornado Cash will affect the entire cryptocurrency industry. Many believe that similar sanctions could affect DeFi in the future. All projects that do not have KYC and AML identity checks are also likely to fall under all sorts of sanctions and bans.
Such services have always attracted scammers who want to launder illegally obtained funds. But these are experts’ opinions, and only time will tell what will happen in practice. All we can do is wait and see.