US Government Lifts Tornado Cash Sanctions

Crypto users will tell you that their experience with the asset class is heavily dictated by the platforms they use. Take exchanges, for example.  The average crypto user relies heavily on exchanges to give them the tokens they want and facilitate their trades. Not only do crypto consumers get to buy and sell tokens with ease, but modern crypto exchanges mean that they can do so while protecting their privacy.

A no KYC exchange has become increasingly popular for this reason and so have other crypto platforms like storage services and staking sites. This type of exchange provides users with all of the features and perks of other exchanges, but protects user information as personally identifiable data is not required.  

But this doesn't mean that crypto-related platforms are without their controversies. In fact, there has been a major development with Tornado Cash, a popular but controversial crypto mixer.

What is a Crypto Mixer?

One of the crypto platforms available to users is token mixers. Typically, all transactions that take place across a public blockchain can be seen by anyone, which sometimes constitutes an issue for those seeking privacy. One way this is mitigated is through the use of token mixers. As the name would imply, these platforms mix batches of crypto tokens together before returning them to their owners. By doing this, it is much harder to track where a specific token originated from and where it went. Privacy tokens are cryptos that are known to offer that level of anonymity, but crypto mixers can be used for any token of any network origin. 

While this can and certainly has been used by legitimate crypto users who are looking to protect their privacy, it has also been misused. Specifically, some crypto token mixers have been accused of aiding hackers and other criminals to hide illicit gains. This was the case with Tornado Cash, a popular crypto mixer. 

Tornado Cash And The Sanctions Issue

The mixer was first launched in 2019 and specializes in ensuring privacy for transactions done on the Ethereum blockchain. In 2022, it was accused of aiding in the laundering of $7 billion in stolen funds. These funds were associated with the Lazarus group, a North Korea-based hacking collective. This group is believed to be backed by the government and has allegedly stolen billions of dollars in cryptocurrency from major exchanges around the world. These funds, it is believed, are being used to support the country's nuclear weapons program and given the controversial relationship North Korea has with other countries, this put Tornado Cash on the US’s radar.

In response, the mixer was added to the Office of Foreign Assets Control (OFAC) list which spells out individuals and entities officially sanctioned by the US government. This was seen as not just a response to the Lazarus group itself but to North Korea's activities. Now, all this seems to be changing.

A New Day For Tornado Cash

While Tornado Cash was certainly controversial, its sanctions were not universally lauded. Many, including six members who sued the U.S. government regarding the sanctions, believed that it was an unnecessary witch hunt that was antagonizing the crypto industry. This was only intensified after two of its founders were indicted in 2023 for money laundering charges.

Now, Tornado Cash is entering a new era as the US Department of Treasury has dismissed the sanctions against it

“Based on the Administration’s review of the novel legal and policy issues raised by use of financial sanctions against financial and commercial activity occurring within evolving technology and legal environments, we have exercised our discretion to remove the economic sanctions against Tornado Cash as reflected in Treasury’s Monday filing in Van Loon v. Department of the Treasury,” the Treasury Department said in a public statement. 

Conclusion

This is the latest in a long line of actions taken by the U.S. government to embrace the crypto sector. Notably, the Trump administration has promised to roll back some of the actions taken by the Biden administration, which it feels was antagonistic towards the crypto industry. This comes the same week after the Securities and Exchange Commission dropped a lawsuit against Ripple Labs.

While Tornado Cash will continue to be a source of controversy within the industry, this decision does show that the tide is changing for crypto-related entities. Whether it will be a net positive for the image of the industry, however, is yet to be seen.