Tornado Cash gets banned in the US and one of its developers gets arrested in the Netherland, but why?
Tornado Cash was banned on August 9th in the US and on August 12th a Duch man was arrested suspected of being one of the site's developers. But why was all this done and what exactly is Tornado Cash? Let us try and see if we can figure this out.
Privacy Crypto Mixers and how they work
Tornado Cash is what they call a Privacy Crypto Mixer. Without going into details of how it works in principle. I will try and explain the practical effects of how it works.
If you have some Cryptocurrency in a wallet that people know is yours. There might be a reason you would want to be able to move this Cryptocurrency and use it. Without these people knowing it is you who have done so. And because all transactions on a Blockchain are public, we will ignore privacy coins in this example. If someone now knows which wallet is yours they can easily follow every transfer of funds you make and see where they end up.
You might be thinking then if only there were a way for you to be able to anonymize your funds and mix them up with other cryptos if you will. And of course, there are. This is where a Privacy Crypto Mixer like Tornado Cash comes in.
In a very simple way, you can think of them as a big pile of all sorts of Cryptocurrencies. And the simplified version is you can throw your crypto onto the gigantic pile. And then tell the people in charge what crypto you would like to get in exchange and where to send it. And because there are so many cryptocurrencies that get mixed in the pile there is no way for the people outside to know which crypto going out that is yours.
Another way to think of it is when they drive your crypto car into a gigantic garage. And there you can swap your car for any other car or color you want. Or you even might choose to swap your big car for several smaller ones. Now the people watching you drive into the garage have no clue of knowing which or what or how many cars you will be driving out.
If you do this you must be a criminal
That is probably the consensus among the broader masses. And my guess is that it is the same people who like to use the pro-surveillance argument of "if you got nothing to hide". But does this generalization really match reality?
The site Chainalysis.com have analyzed the funds going into Tornado Cash sins the site's inception in August 2019. The link to their post is down below. Let us take a look at what they have found.
The image shows a pie chart of all the funds deposited into Tornado Cash since it opened its doors in 2019
The total volume of funds we are talking about is $7.6 Billions worth of Ethereum that have been deposited. And when we look at the data we can see that 10.5% of the funds deposited were stolen. And another 17.7% of the funds came from sources that were sanctioned. Chainalysis, however, makes a point of clarifying that almost all of this 17.7% of funds were deposited before any sanctions against those parties were in place.
Also worth noting is that the vast majority of the stolen funds "only" came from one source. The Ronin Bridge Hack was perpetuated by the Lazarus Group back in March of this year. There $620 Million were stolen. And that is making up 8.16% of the 10.5%.
Pros and Cons of privacy
Let us take a look at the pros and cons of allowing this sort of privacy. First of all the biggest elephant in the room is it allows criminals to hide or launder their ill-gotten means. The same goes for people who want to hide their funds to be able to skip paying taxes. This is obviously a bad thing. But it is not like people were not laundering money before. And the same goes for not paying taxes. If anything the Panama Papers and similar leaks have just shown the tip of the iceberg regarding this.
What we do have to take into account however is if this new type of tool makes it easier for criminals to hide their money. And if it allows for a new type of crime. Why would this matter? Well, I would argue that if I was a criminal looking to hide my money or evade paying taxes. I would choose the easiest way to do it. Given the chance of getting caught where about the same. Sadly I do not know the answers to either of these questions. But I am pretty sure that there are people who do.
Another sort of neutral, I guess it depends on you, is also that people can now anonymously donate money to causes and organizations that are operating in the gray areas of society. Whether this is right or wrong, to support them, I will not comment on. But at least for me doing it anonymously I think is questionable.
The probably biggest argument for this type of service is the fact that people living in totalitarian countries simply put need this type of service to be able to survive and fight back. There is, I would argue, a reason why mining is so popular in both China and Russia. Sure you can argue that you make good money in China where living is relatively inexpensive. But that I would argue is not true for Russia, which I assume have a fairly similar cost to most eastern European countries.
And the reason for both countries banning the use of Cryptocurrencies is most likely the same as well. Remove the freedom and funds of the people so they can better control them. This reason is also why these two countries are at the forefront of the CBDC adoption. It is yet another way to surveil and control the people living there.
So if you were living there and either would want to try and make your situation better, work for a change or even try and leave the country. All those things require money. And money preferably no one but you know where it is and can access it.
A general argument for privacy, for me at least, is the fact that there are so many of the world's biggest companies that are actively data mining you and me as we speak. So I would argue that it is not more than fair that we take back some of our privacy, and try to regain control.
Then there are the people who just think that it is their money and you and big brother should just get your curious nose out of it.
I am sure there are a lot more arguments to be made for and against. But these I find are the bigger and more common ones.
Why ban Tornado Cash
The reason given here is that the US acted because the site where being used to launder stolen funds.
Today, Treasury is sanctioning Tornado Cash, a virtual currency mixer that launders the proceeds of cybercrimes, including those committed against victims in the United States, -Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson
Personally, I hope that they have reached out to Tornado Cash first and asked them to help, and then this step was taken in response to their refusal.
I can´t help but feel that this whole thing rings eerily familiar to the whole Piratebay crap storm a few years back. Where the people running that site were held responsible for people using it to commit crimes. And I assume a similar faith is waiting for the developers of Tornado Cash.
Is this fair? I would say h<em>ll no. It is some crazy form of double standard that gets used. Do this mean I want to live in a police state where virtually no crime exists? H</em>ll no to that too. Do this mean I am pro-crime? Well, you guessed it, it is a h<em>ll no to that too. But do I think everyone should be playing by the same set of rules, h</em>ll yes.
What is your thought on this whole thing? Are you for or against this type of service? Please share your thoughts on anything pertaining to this in the comment section down below.
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See you on the interwebs!
Picture provided by: https://blog.chainalysis.com/, https://pixabay.com/, Midjourney
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