Tornado Cash virtual currency mixer hit by U.S. sanctions

The Ethereum-based platform is believed to have been used to launder over $7 billion in virtual currencies

The U.S. Department of the Treasury announced on Monday that the Treasury’s Office of Foreign Assets Control (OFAC) was imposing sanctions on Tornado Cash, a virtual currency mixer linked to several crypto hacks. The move comes after the Harmony bridge exploit in late June this year, and the Nomad bridge hack this month. 

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The Tornado Cash mixer is a decentralised protocol based on the Ethereum blockchain. Ethereum’s native currency Ether (ETH) is only below Bitcoin in terms of market cap. Tornado Cash accepts crypto tokens in exchange for “mixing” virtual currencies from diverse sources, without investigating or reporting their travel patterns. These funds can be legally obtained assets as well as stolen crypto assets from hacks. While crypto hackers are already difficult to trace due to the decentralised nature of the ecosystem, running the funds through Tornado Cash adds an extra layer - or several more layers - of anonymity to scuttle investigators. Hackers use such virtual mixers so that their transaction trail is not accessible on the blockchain.

“Tornado Cash improves transaction privacy by breaking the on-chain link between source and destination addresses. It uses a smart contract that accepts ETH & other tokens deposits from one address and enables their withdrawal from a different address,” stated the Tornado Cash website.

Other such mixers exist. In May the U.S. government imposed sanctions on a mixer called Blender.io (Blender), which was linked to North Korean cyber criminals.

However, it would be wrong to assume that Tornado was built for the use of crypto hackers. Numerous legal use cases exist to justify the use of the platform. Tornado even has a compliance tool for those who wish to use it, so they can reveal their transaction history.

The U.S. Treasury Department’s Notice claimed that Tornado Cash had been used to launder over $7 billion in virtual currencies since it was founded in 2019. However, the estimate could be a conservative one.