#TornadoCash sold #crypto “#privacy”; the US saw “#MoneyLaundering.” A jury isn’t sure what to think.
Ars Technica · Tornado Cash sold crypto “privacy”; the US saw “money laundering.” A jury isn’t sure what to think.
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#TornadoCash
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making money laundering great again (Tornado Cash is a crypto thing built for and very popular with money launderers like North Korea and #Russia, who use it to anonymize their on chain activity. the howler monkeys on the 5th circuit declared the sanctions against it to be unconstitutional a few months ago and then the #Trump administration dropped the sanctions that prohibited people from using the service).
the TORN token, which is literally an investment in the success of a money laundering enterprise, spiked on the news.
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@privacyguides I didn't know there was a case that ruled that software was protected speech in the US.
How come they were able to go after #TornadoCash then?
I have been thinking for a while about the issue of anonymity in Web3 (and, more in general, anonymous transactions). The growing realization of the damage caused by decentralized financial technologies is nagging my cypherpunk self, who has been at war for a lifetime against invasive tracking, manipulative marketing, and surveillance capitalism. I collected my thoughts here: https://gagliardoni.net/#20250427_privacy_compliance
Spoiler alert: I'm not endorsing backdoors, but I think some middleground solution must be found.
gagliardoni.netTommaso Gagliardoni's Homepage
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@KimPerales the noise in #DOJ's press release about focusing on terrorism etc. is also just smoke and mirrors. the trump administration already removed sanctions from russia and north korea’s favourite crypto mixer #TornadoCash and the president’s business partner Justin Sun owns the blockchain (Tron) that Iranians and various terrorist groups love to use openly to make USD transfers.
This week on "Unexpected Downsides To #Cryptocurrency":
Did you realize that you can't reject #blockchain transactions and therefore anyone who wants to harass you can more or less freeze your "bank account" at an exchange like #Coinbase instantly just by either:
a) sending a euro through a sanctioned mixer service like #TornadoCash before sending it to you or
b) sending a few cents to a sanctioned terrorist wallet before sending you a single cent
The automated systems used by Coinbase will immediately notice that you have interacted with suspicious or sanctioned wallets and Coinbase, which, like all crypto companies, spends as little as possible on customer support, will lock your account until you produce a passport for the person who sent you that tiny amount of money (often for months).
These so called "dust attacks" constitute revolutionary new vectors in harassment.
https://x.com/erla221942/status/1887001796473704731
cc @briankrebs
Just before Thanksgiving, an US appeals court ruled that the Treasury cannot sanction Tornado Cash "smart contract" under the IEEPA act. Since this was related to Tornado Cash, this was mostly celebrated as a win for Crypto. But the implications are much wider. This ruling is a disaster averted for the broader technology industry, especially open source software.
Basically, Treasury/OFAC sanctioned a piece of software. The appeals court said that they cannot do that. They can go after entities that control the software, properties owned by those entities, but not the software itself.
What's wrong if we let the government sanction "software" that is often (but not always) used for money laundering, you may ask. Sure, it is only Cryptocurrency software today. But it sets the precedent for the government to sanction end-to-end encryption software tomorrow. It is also often, but not always used for nefarious purposes And who knows what after that. Slippery slope and all that.
More context:
Court order: https://www.ca5.uscourts.gov/opinions/pub/23/23-50669-CV0.pdf
IEEPA is the authority used by the Treasury/OFAC to sanction entities and individuals that fit certain criteria (terrorists, drug traffickers, international money launderers etc.). It is a crime for US persons to transact with sanctioned entities. Long and short of the court ruling is that the IEEPA authorizes the president to block transactions in "property". A smart contract is not a property, because it can neither be owned nor controlled.
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The Fifth Circuit overturned some sanctions against Tornado Cash, determining that truly immutable smart contracts cannot be sanctioned. I’m not sure this will meaningfully change the effort to sanction the mixer, and it may actually make things worse for blockchain operators.
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Of course this was a concern already, but what with the Treasury focused on the Tornado Cash contracts, it was less central than I suspect it might be soon. This strategy would be somewhat in keeping with legal theories around other "malicious" code, where it's broadly speaking legal to write a devastating computer virus, but a whole lot less legal to run one.
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More broadly speaking, it also seems kind of wild to me that they have decided that in order for something to qualify as a "service", human effort must be expended.
![In the Department’s view, a service is “the performance of some useful act or series of acts for the benefit of another, us[ually] for a fee.”73 But according to Black’s Law Dictionary, “[i]n this sense, service denotes an intangible commodity in the form of human effort, such as labor, skill, or advice.”74 No human effort is expended by the immutable smart contracts. And even by the Department’s definition, the immutable smart contracts, which are nothing more than lines of code, are less like a “service” and more ](https://media.hachyderm.io/media_attachments/files/113/552/386/862/710/271/original/3624eff909b06ee2.png "In the Department’s view, a service is “the performance of some useful act or series of acts for the benefit of another, us[ually] for a fee.”73 But according to Black’s Law Dictionary, “[i]n this sense, service denotes an intangible commodity in the form of human effort, such as labor, skill, or advice.”74 No human effort is expended by the immutable smart contracts. And even by the Department’s definition, the immutable smart contracts, which are nothing more than lines of code, are less like a “service” and more ")
It's interesting to me that the Fifth Circuit only considered "control" at the smart contract level, and does not seem to consider the role of validators in their opinion. A substantial portion of ETH blocks are built with relays that censor transactions with OFAC-sanctioned contracts, and it seems to me there is now an open question validators that use non-censoring relays could be sanctioned directly.
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(Not saying they SHOULD, just remarking on the fact that it seems to have gone completely unaddressed.)
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Here's the full decision: https://storage.mollywhite.net/pdfs/TornadoCash5Cir.pdf
(CourtListener/RECAP doesn't like it because PACER has a split PDF, apologies)
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Some background on the Tornado Cash issue, and some of my thoughts on it from earlier this year: https://www.citationneeded.news/tornado-cash/
Citation Needed · Privacy, human rights, and Tornado CashI am more worried about privacy than crypto crime.
The Fifth Circuit has just opined that the smart contracts that comprise the Tornado Cash cryptocurrency tumbler are "not property because they are not capable of being owned", and thus cannot be sanctioned by OFAC.
![The immutable smart contracts at issue in this appeal are not property because they are not capable of being owned. More than one thousand volunteers participated in a “trusted setup ceremony” to “irrevocably remov[e] the option for anyone to update, remove, or otherwise control those lines of code.” And as a result, no one can “exclude” anyone from using the Tornado Cash pool smart contracts. In fact, because these immutable smart contracts are unchangeable and unremovable, they remain available for anyone to use and “the targeted North Korean wrongdoers are not actually blocked from retrieving their assets,” even under the sanctions regime. Simply put, regardless of OFAC’s designation of Tornado Cash, the immutable](https://media.hachyderm.io/media_attachments/files/113/552/003/131/390/331/original/98775589fe5ccb9f.png "The immutable smart contracts at issue in this appeal are not property because they are not capable of being owned. More than one thousand volunteers participated in a “trusted setup ceremony” to “irrevocably remov[e] the option for anyone to update, remove, or otherwise control those lines of code.” And as a result, no one can “exclude” anyone from using the Tornado Cash pool smart contracts. In fact, because these immutable smart contracts are unchangeable and unremovable, they remain available for anyone to use and “the targeted North Korean wrongdoers are not actually blocked from retrieving their assets,” even under the sanctions regime. Simply put, regardless of OFAC’s designation of Tornado Cash, the immutable")
I don't think the people attacking #TornadoCash devs understand the legitimate problems they were solving.
It's not about money laundering.
How would you feel if your entire bank account purchase history were visible to everyone in the world?
It's not about money laundering.
How would you feel if your entire bank account purchase history were visible to everyone in the world?
If North Koreans robbed a bank with a Winchester and used a Toyota as a getaway car, are Toyota and Winchester at fault?
This is what the thugs going after @rstormsf & #TornadoCash are arguing.
https://x.com/L0laL33tz/status/1811843054711767276
This is what the thugs going after @rstormsf & #TornadoCash are arguing.
https://x.com/L0laL33tz/status/1811843054711767276
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Some who know me as a cryptocurrency critic may find these opinions surprising coming from me.
But if you are surprised, I have failed. And I think I have, because I think some of you will be.
We must protect privacy, even in the face of cryptocurrency crime. As governments crack down on one of the most notorious tools for criminal money laundering in the cryptocurrency world, I’m worried about the ramifications.
Citation Needed · Privacy, human rights, and Tornado CashI am more worried about privacy than crypto crime.