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What’s next for crypto | MIT Technology Review


Tornado warning

DeFi advocates are also confronting regulators on a separate front, where the main issue right now is privacy. Nowhere is the stakes higher for the future of decentralized financial systems than in the case of Tornado Cash.

Like Uniswap, Tornado Cash is a collection of smart contracts on the Ethereum blockchain. It allows users to deposit cryptocurrency to a pool of other people’s digital currency and then withdraw it to another address, while using advanced cryptographic techniques known as zero-knowledge proof to ensure that there is no public link between the deposit address and the withdrawal address. That means money is no longer tied on the blockchain to a user’s past transactions, which makes tracking more difficult and provides a layer of security.

In August, the Office of Foreign Assets Control (OFAC) of the Ministry of Finance penalize 45 Ethereum addresses are associated with the platform, effectively banning Americans from using it and dwindling its user base. The agency said it took the action because Tornado Cash was used to launder billions of dollars, including hundreds of millions of dollars stolen by North Korean state-sponsored hackers.

OFAC has sanctioned blockchain addresses associated with foreign individuals before, but never before has it sanctioned a smart contract. Peter Van Valkenburgh, director of research at Coin Center, an advocacy group in Washington, DC, argues that it also has no authority to do so. As Coin Center pointed out, many OFAC-sanctioned contracts cannot be modified, blocked, or shut down by any of the Tornado Cash developers; They exist independently of human intervention.

While OFAC has the legal power to sanction people and certain foreign entities, it cannot ban Americans from using a tool like Tornado Cash, Van Valkenburgh said: “The statute empowering OFAC never did. intended by Congress to tell Americans what software tools they can and cannot use.”

Coin Center filed a lawsuit against the Treasury Department to reverse the sanctions and prevent the Treasury Department from “exercising their fundamental and obvious rights to privacy.” Besides arguing that OFAC has no authority to ban software tools, Coin Center also argued that sanctions violate the Constitution. Popular US crypto exchange Coinbase is finance a similar lawsuit against the Treasury.

After the sanctions were introduced, GitHub removed the project’s source code and the project’s website, Tornado.cash, was taken down. Other than OFAC’s actions, Dutch authorities arrested one of Tornado Cash’s developers, Alexey Pertsev, and a prosecutor accused Pertsev of facilitating money laundering.

Pertsev is one of the founders of Tornado Cash. But like most crypto projects, Tornado Cash is open source and relies on a loosely affiliated collection of contributors. Another co-founder, Roman Semenov, did not respond to a request for comment.

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