July 23, 2024
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Blockchain News

Sanctions Couldn’t ‘Pull the Plug’ on Tornado Cash: Chainalysis

While access to the crypto mixer has become more difficult in recent years, for better or worse, decentralization makes it nearly impossible to eliminate.

Sanctions aimed at decentralized crypto mixer Tornado Cash were unable to completely halt its use, but they did hamstring the service, according to a blockchain analytics firm.

The Office of Foreign Assets Control (OFAC) sanctioned the crypto mixer on August 8 for its role in the laundering of criminal proceeds.

In a report published on Jan. 9, Chainalysis stated that the sanctions had an effect, with total inflows to the mixer dropping by 68% in the 30 days following the sanctions’ implementation.

However, because Tornado Cash is a smart-contract-based decentralized platform, “no person or organization can ‘pull the plug’ as easily on Tornado Cash as they could with a centralized service,” according to the firm.

Chainalysis cited the example of Hydra, a darknet marketplace that saw cryptocurrency inflows drop to zero after German police seized its servers as a result of sanctions.

While Tornado Cash’s “front-end website was taken down,” Chainalysis explained, “its smart contracts can run indefinitely, meaning anyone can still technically use it at any time,” adding, “that suggests sanctions against decentralized services act more as a tool to disincentivize the service’s use rather than cutting off usage completely.”

Tornado Cash was sanctioned harshly by OFAC in August 2022 due to concerns that individuals and groups had allegedly used the mixer to launder billions of dollars in cryptocurrency since 2019, including the $455 million stolen by the North Korean-linked Lazarus Group.

In November, the agency amended the sanctions to punish the platform even more for “enabling malicious cyber activities that ultimately support the DPRK’s [weapons of mass destruction] program.”

According to Chainalsis’ latest report, the illicit use of Tornado Cash was primarily related to crypto hacks and scams, with a rough average of 34% of all inflows attributed to such.

While the sanctions did not completely stop the mixer, they did effectively scare people away from using it, with total inflows dropping by 68% the following month.

Specific figures are not provided, but the chart shows that daily inflows peaked at nearly $25 million per day in the 30 days preceding the sanctions, then dropped to less than $5 million per day in the aftermath.

“Those incentives appear to have been powerful, as its inflows fell 68% in the 30 days following its designation. This is especially important in this case because Tornado Cash is a mixer, and mixers become less effective for money laundering the less funds they receive overall, according to the report.

This week, a separate report from blockchain security firm SlowMist provided some clues about the type of money flowing through Tornado Cash in 2022. According to the firm’s research, $1.62 billion in Ether was deposited into the platform last year, with 1,283,186 ETH pulled out ($1.7 billion).