Category: Tornado Cash

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Cryptocurrency Law Privacy Social media Tornado Cash

#FreeAlexPertsev Protest March Kicks Off After Tornado Cash Dev’s Arrest

A week after the arrest of Tornado Cash developer Alexey Pertsev, public dissent has reached a crescendo. Crypto and privacy advocates are planning protest marches and a petition advocating for his release is now circulating on social media under the #FreeAlexPertsev banner.

Writers of Open-Source Code Treated as Scapegoats

Following Pertsev’s arrest in Dam Square, Amsterdam, 50 advocates organised a demonstration alongside Pertsev’s wife, Xenia Malik. The public is also getting on board with protesters arguing Pertsev should not be held responsible for writing open-source code, regardless of its users.

The protest is raising several questions in relation to whether these projects’ developers deserve such harsh punishments. Crypto mixers in themselves are not illegal, merely serving to allow users transaction anonymity. The problem comes when this technology is used to launder illicit funds.

A petition was organised on Change.org last week by Finnish product manager Daria Mironova, who hopes to further raise awareness of the circumstances of the arrest. In the petition, Mironova explains that open-source software can be “audited, fixed and improved by anyone”, yet a developer cannot control how this code is used, even with the best intentions.

If we don’t react now, in the future we might see many cases where innocent developers go to prison when someone misuses their code.

Daria Mironova, Finnish product manager

As it stands, no official charges have been filed against Pertsev; however, he has been interrogated about his involvement in the protocol’s development. By the end of last week, 1,015 signatures had been added to the petition. When that figure reaches 40,000, Mironova plans to take this proof of public dissent to the authorities.

How It All Started

On August 12, Dutch authorities announced they had arrested Perstev in Amsterdam for his supposed involvement in facilitating money laundering and concealing criminal financial flows through his work on the crypto mixing service. It was alleged that Tornado Cash enabled criminals to launder stolen assets by concealing their identities.

Yet it wasn’t all negative, as the platform also hid the identities of Ukrainian citizens receiving donated crypto from the public. However, the Dutch authorities maintain that those behind the company made a significant profit from these transactions.

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Crime Ethereum Privacy Tornado Cash

Suspected Tornado Cash Developer Arrested by Dutch Authorities

Dutch authorities have announced their arrest last week of a Tornado Cash developer in Amsterdam for his alleged involvement in concealing criminal financial flows and facilitating money laundering through his work on the crypto mixing service. 

Tornado Cash, which is built on the Ethereum blockchain, allows users to conceal the sending and receiving addresses of transactions, thus concealing their identity. It has reportedly been widely used by criminals to launder stolen assets, but has also been used for legitimate purposes such as concealing the identities of Ukrainian citizens receiving donated crypto.

Dutch Investigators Say More Arrests May Follow

The Tornado Cash developer’s arrest was announced by the Dutch Fiscal Information and Investigation Service (FIOD) on August 12, two days after it took place. The FIOD said it couldn’t rule out further arrests in connection with the case.

FIOD’s interest in Tornado Cash began in June of this year when its Financial Advanced Cyber Team (FACT) launched a criminal investigation of the service. FACT claims that Tornado Cash has been widely used by hackers to launder vast quantities of stolen crypto assets including “funds stolen through hacks by a group believed to be associated with North Korea”.

FACT found evidence of high-value criminal cash flows through the mixer since it was launched in 2019:

Investigations showed that at least one billion dollars’ worth of cryptocurrencies of criminal origin passed through the mixer. It is suspected that persons behind this organisation have made large-scale profits from these transactions. 

Dutch Fiscal Information and Investigation Service (FIOD)

Crypto Community Reacts With Dismay

This arrest comes after the US Treasury’s sanctioning of Tornado Cash last week for what it described as the crypto mixer’s repeated failures to impose effective controls to curtail illegal use of the service. Tornado Cash had previously attempted to weed out criminal users of the service by blocking sanctioned addresses, but the US authorities considered these efforts inadequate.

The crypto community has generally reacted negatively to this arrest, suggesting it represents an infringement of the developer’s right to freedom of speech and an attack on crypto users’ privacy:

Other Twitter users have also pointed out the disparity between the treatment of the Tornado Cash developers and the creators of some high-profile crypto failures and rug pulls:

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Crime DeFi Regulation Tornado Cash

US Treasury Sanctions Crypto Mixer ‘Tornado’, Freezing USDC and ETH Addresses  

Tornado Cash, a mixing service that obscures crypto transaction information, has been sanctioned by the US Treasury, which claims the DeFi protocol is regularly used for money laundering to cover up cybercrime.

Treasury added Tornado Cash and 44 of its Ethereum and USDC wallet addresses to its Specially Designated Nationals list of embargoed entities typically used to prohibit people in the US from dealing with terrorists and authoritarian regimes.  

According to Treasury, more than US$7 billion had been laundered via Tornado Cash, including some US$455 million of the US$625 million stolen by North Korean hacking group Lazarus in an exploit of the Ronin Network in March this year. Tornado Cash was also used to conceal the source of more than US$96 million in dirty money from June’s Harmony Bridge heist, Treasury said. 

Protocol Fails to Balance Privacy and Compliance 

Tornado Cash ‘mixes’ crypto transaction details to break the links in on-chain activity, in the interests of preserving users’ privacy. Deposits are made via one address and withdrawn by a different address, meaning transactions are harder to trace – and therefore appealing to criminals.

In April 2022, Tornado Cash moved to block access by addresses sanctioned by Treasury’s Office of Foreign Assets Control (OFAC) in an attempt to demonstrate compliance. More recently, the protocol transitioned to a fully open-source user interface to increase transparency by enabling contributors to suggest code improvements.

However, it’s clear Treasury did not feel the protocol was meeting its anti-money-laundering obligations, making it a threat to US national security.

Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks. Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.

Brian E. Nelson, Treasury Under Secretary for Terrorism and Financial Intelligence

Treasury Issues Broader Warning

Treasury also had a warning for the broader crypto ecosystem: “As today’s action demonstrates, mixers should in general be considered as high-risk by virtual currency firms, which should only process transactions if they have appropriate controls in place to prevent mixers from being used to launder illicit proceeds.”

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Crypto News DeFi Tornado Cash

Decentralised Mixer ‘Tornado’ Goes Open Source to Increase Transparency

Popular DeFi privacy protocol Tornado Cash has announced a fully open-source user interface for Tornado Cash Classic, allowing contributors to check out the code and suggest improvements via the platform’s GitHub.

UI vulnerabilities have been a major focus for the Tornado community and, according to a Medium post, the move is part of its efforts to prioritise a fully transparent and decentralised ecosystem:

We personally grew fond of the black and green floating astronaut associated with the protocol. However, you should know our credo by now: we will always lean towards more decentralisation.

Tornado Medium post

What is Tornado Cash?

Tornado Cash essentially works by allowing users to mix their crypto tokens in a pool of fellow users’ crypto, making it practically impossible to track.

In December last year, the protocol announced its integration with Arbitrum, a layer 2 solution that leverages optimistic rollups for Ethereum dApps to ensure faster speeds, lower fees and transaction privacy. 

In April, Tornado Cash started blocking US Office of Foreign Assets Control (OFAC) addresses, stating that “maintaining financial privacy is essential to preserving our freedom, [though] it should not come at the cost of non-compliance”.

The protocol has long been a popular platform for users seeking anonymity and decentralisation. The current price of Tornado Cash (TORN) is US$20.40, as per data from CoinMarketCap, with a 24-hour trading volume of US$6.2 million.

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DeFi Illegal Privacy Scams Tornado Cash

ETH Privacy Tool Tornado Cash Starts Blocking Sanctioned Addresses

Tornado Cash is apparently using Chainalysis oracles to block access from US Office of Foreign Assets Control (OFAC) addresses. The blockade only applies to the Tornado front-end, not the underlying smart contract:

As a fully decentralised protocol for private transactions of Ethereum, Tornado Cash last year announced it would be integrating with Arbitrum, the layer-2 solution that leverages optimistic rollups for Ethereum dApps.

Maintaining financial privacy is essential to preserving our freedom, [though] it should not come at the cost of non-compliance.

Tornado Cash

Tornado Cash works by “breaking the on-chain link between source and destination addresses”. Deposits go into a smart contract, where they are mixed around with others, and can then be withdrawn by a new address, making it more private.

The Chainalysis oracle is a smart contract that works on Ethereum and several other networks, including Avalanche, BNB Smart Chain, and sidechain and layer-two networks such as Polygon and Optimism. Simply put, Tornado Cash is a piece of code that scans crypto addresses and determines whether they are subject to sanctions from the US or other governments, and if so, the wallet is blocked.  

Tornado Cash Facilitates Hackers

Earlier this month, Inverse Finance, a decentralised lending protocol built on Ethereum, lost over US$15 million in a DeFi hack. Hackers were able to take out massive loans and get away with it through Tornado Cash.

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Crypto News DeFi Fantom Hackers Tornado Cash

DeFi Platform ‘Deus Finance’ Exploited for $3 Million

Fantom-based DEUS Finance has suffered a flash loan exploit when hackers made off with an estimated US$3 million and washed it through Tornado Cash. Luckily, affected DEI holders will be reimbursed.

Hackers Use Flash Loan Attack

According to a tweet from blockchain security firm PeckShield, hackers used a flash loan attack to destabilise the DEI, the other token issued by DEUS Finance:

Hackers set the flash loan to target the price oracle responsible for the price of DEI, making it think the DEI had collapsed. This resulted in a loss of all funds that were held in the DEI/USDC liquidity pool.

An estimated US$3 million was stolen and exchanged for 200,000 DAI and 1101.8 ETH, and moved via the Multichain cross-chain router protocol (CRP). The hacker moved the funds to Tornado Cash, a privacy-centric swapping tool, to help make the funds disappear (or at least make them much harder to track).

Deus Finance admitted the flaw in its lending process and stated that its $DEI lending contract had been closed. The DEUS token fell nearly 40 per cent following reports of the hack, but it seemed to have recovered somewhat by the time of writing.

Community to be Fully Recompensed

According to the postmortem on its official medium, Deus Protocol CEO Lafayette Tabor reassured users they would be completely reimbursed:

To make things clear: NO USER FUNDS are LOST. We will make everyone whole again – anyone affected by the exploit will be reimbursed completely. This means that the sAMM inside the borrowing contract will be replenished and the balances of users that got affected will be restored to the value they had prior to the exploit.

Lafayette Tabor, CEO, Deus Protocol

After also taking to Twitter to inform the community about the reimbursement plan, Tabor stated that the developers would create a new contract where affected users would be able to repay their loans:

DEUS community members were elated to hear about the reimbursement scheme, since it’s very rare for compromised protocols to recompense their community.

This attack comes little more than a month after Polygon DeFi protocol QiDao was exploited for US$13 million. And in January, Algorand-based DeFi trading platform Tinyman was hacked and drained of roughly US$3 million.

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DeFi Ethereum Privacy Tornado Cash

Tornado Cash Token (TORN) Surges 94% Following Bullish Protocol Updates

The native token for the Tornado Cash protocol (TORN), an Ethereum-based privacy protocol, has surged 94 percent following the launch of its latest network updates.

Tornado Cash is a fully decentralised privacy protocol which enables anonymous transactions on the Ethereum network. The protocol achieves anonymity primarily by breaking the on-chain link between source and destination addresses when transactions are made.

Price Increase Follows Launch Of Relayers

The latest price action for TORN follows the adoption and implementation of the protocol’s 10th on-chain governance proposal, which saw the addition of relayers to the network:

The community voted overwhelmingly in favour of the proposal, which was accepted on February 19. Following the launch of relayers on March 2, the price of TORN spiked from around US$37 to around the $US67 mark.

What Are Relayers?

Tornado Cash relayers are community members who process withdrawal transactions and allow users to send transactions to accounts with no ETH balance – they are considered an important part of the protocol and improve users’ privacy. 

Relayers are compensated for their network services with a small portion of users’ deposits. Anyone can become a relayer, provided they meet the minimum balance requirement of 300 TORN and accept the terms and conditions.

TORN Gaining Momentum

The addition of relayers to the Tornado Cash protocol is a further boost following its integration of ETH layer 2 solution Arbitrum in December 2021, which saw a dramatic decrease in gas fees and improvements in transaction times:

The protocol was also recently assessed by DeFi safety, which found it to be highly secure – awarding Tornado Cash an overall score of 85 percent.