Crypto mixing protocols already had a bad reputation, largely related to money laundering. The United States has just banned the best known of them, Tornado, but that does not sign their end.
The news fell on August 8, 2022: the US Treasury announced that it was sanctioning Tornado Cash, a cryptocurrency mixer protocol, and banned US nationals from using its services. The American agency accuses Tornado of having made it possible to launder the equivalent of 7 billion dollars since its creation in 2019.
The news is not surprising: in recent years, more and more gangs or hackers have been using these mixers to cover their tracks and not be able to be found by the authorities. With each new hack, the use of these mixer protocols therefore became more and more controversial.
Yet it’s not just cybercriminals who are using mixer protocols, and the US Treasury’s decision has privacy advocates greatly concerned. Crucially, despite US sanctions and bans, mixer protocols aren’t going away.
What is a mixer protocol?
It is important to first of all make a reminder: mixer protocols are services used to guarantee the anonymity of transactions on blockchains. For this, the mixers mix the cryptos of several people before sending them back to anonymized addresses. This step makes it extremely difficult to trace cryptocurrencies, and thus, for cybercriminals, to disappear.
Transactions are usually public on blockchains: if you know the address of a crypto wallet, it is quite possible to consult the possessions of the latter, as it is possible to see the transactions carried out in the past. With mixer protocols, everything becomes much more complicated, whether it’s to spy on someone’s accounts, or to track down a cybercriminal.
In the case of Tornado Cash, the US Treasury accuses the platform of helping North Korean hacker group Lazarus launder $455 million. That’s not all: the American agency also accuses him of having allowed the laundering of 96 million dollars after the hack of Harmony Bridge, and 7.8 million after that of the Nomad platform. Tornado was also talked about in April, during the hack of the Beanstalk project, which was stolen 182 million dollars. In all, the US Treasury estimates that Tornado has laundered $7 billion since its inception in 2019.
Ordinary users
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 reproach themselves for. CoinDesk also explains that between May and June 2022, deposits on Tornado exceeded 200,000 ETH – a total amount of between 200 and 600 billion dollars. The $7 billion that the US Treasury accuses the platform of having laundered since 2019 is therefore a very small part of its activity.
Moreover, immediately after the announcement of the US Treasury sanction, many people rose up against the decision, criticizing a lack of respect for privacy. Others have complained of seeing part of their fund frozen and the GitHub accounts of some Tornado contributors, including that of Roman Semenov, its founder, have even been deleted.
However, it must be recognized that a significant proportion of Tornado users engage in money laundering. Analysts from Nansen, a consulting firm specializing in blockchain, estimate that in recent months, nearly 18% of the ETH in circulation in the mixer came from the hack of the Ronin platform, linked to the game Axie Infinity.
The US Treasury sanctions will therefore clearly affect hackers, who will certainly fall back on other mixing solutions. But in the end, it is mainly ordinary users who are likely to suffer the most from the condemnation by the American authorities.
Moreover, just because Tornado is sanctioned doesn’t mean the end of mixer protocols. Before that, the US Treasury had Blender.io banned in May, and in 2019 it was Europol that was shutting down 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.