Crypto mixing protocols already had a bad reputation, largely related to money laundering. The United States just banned the most famous of them, Tornado, but that doesn’t mean their end.
The news fell on August 8, 2022: The US Treasury Department announced that it approved Tornado Cash, a cryptocurrency mixing protocol, and banned US citizens from using its services. The US agency accuses Tornado of having laundered the equivalent of $7 billion in white since its founding in 2019.
The news is not surprising: in recent years more and more gangs or hackers are using these mixers to cover their tracks and they have not been found by the authorities. With each new hack, the use of these mixer protocols became more and more controversial.
Still, it’s not just cybercriminals who use mixing protocols, and the decision by the US Treasury Department is a major concern for privacy advocates. Crucially, despite US sanctions and bans, mixer protocols are not going away.
What is a mixer protocol?
It is important to first make a reminder: mixer protocols are services used to ensure the anonymity of transactions on blockchains. The mixers are for this to blend various people’s cryptos before being sent back to anonymized addresses. This move makes it extremely difficult to trace cryptocurrencies and thus for cyber criminals to disappear.
Les transactions sont d’ordinaire publiques sur les blockchains : si l’on connait l’adresse d’un wallet crypto, il est tout à fait possible de consulter les possessions de ce dernier, comme il est possible de voir les transactions effectuées dans le past. Mixing protocols make everything much more complicated, whether spying on someone’s accounts or tracking down a cybercriminal.
In the case of Tornado Cash, the US Treasury Department accuses the platform of aiding North Korean hacker group Lazarus in laundering $455 million. That’s not all: the US agency also accuses him of laundering $96 million after the hack of Harmony Bridge, and 7.8 million after that of the Nomad platform. Tornado was also discussed in April, during the hack of the Beanstalk project, where $182 million was stolen. In total, the US Treasury Department estimates that Tornado has laundered $7 billion since its inception in 2019.
But it’s not just illegal activity on Tornado and Mixer protocols. The creators of the platform believe that a large part of their users are classic users, who have nothing to blame themselves. CoinDesk also explains that between May and June 2022, deposits on Tornado exceeded 200,000 ETH — a total of between $200 and $600 billion. The $7 billion that the US Treasury Department has accused of money laundering since 2019 is therefore a very small part of its activity.
In addition, immediately after the announcement of the US Treasury’s sanction, many people protested the decision, criticizing the lack of respect for privacy. Others have complained about part of their fund being frozen and the GitHub accounts of some Tornado contributors, including those of Roman Semenov, the founder, have even been removed.
However, it must be recognized that a significant portion of Tornado users are involved in money laundering. Analysts at Nansen, a blockchain consultancy, estimate that nearly 18% of the ETH circulating in the mixer in recent months came from the hack of the Ronin platform, linked to the game Axie Infinity.
The US Treasury sanctions will thus clearly affect hackers, who will certainly fall back on other mix solutions. But in the end, it is mainly ordinary users who probably suffer the most from the conviction by the American authorities.
In addition, the fact that Tornado has been sanctioned does not mean the end of the mixer protocols. Before that, the US Treasury had banned Blender.io in May, and in 2019 it was Europol that closed Bestmixer.io. In 2021, the founder of another mixer, Bitcoin Fog, was arrested by US authorities for money laundering. Each time, other sites took over.