As the world of cryptocurrency weaves its way through a myriad of permissible and illicit activities on its way to global adoption, one paradox remains: Hamlet-like existential angst recently played out in the banning of Tornado Cash if Should decentralized cryptocurrency networks be regulated?
Tornado Cash Privacy Scheme
It does what privacy coins have been doing for a while, making transactions untraceable by mixing digital addresses. Tornado Cash is a smart contract that uses Ethereum and ERC-20 tokens.
It’s great from a privacy standpoint as users can hide activity when they want to send and receive funds that they don’t want others to see. But it can also stimulate illegal activity, through which regulators must intervene.
The US Office of Foreign Assets Control (OFAC), earlier this month, discovered that Tornado Cash has been used to launder around $7 billion to date.
A North Korean hacking group, Lazarus Group, in 2019 used it to steal more than $455 million in USDC and Ether from the Ronin Network gaming protocol.
Total ETH deposits in April after the hack in March increased from $200 billion to $600 billion. Blockchain analytics firm Nansen traced crypto deposits back to the Tornado Cash mixer and found that about 18% of the ETH flowing through Tornado Cash originated from the Ronin hack.
The Ronin hack has serious national security implications, according to Ari Redbord, head of legal and government affairs at a blockchain analytics firm. Cryptocurrencies from the hack could potentially be used to fund activities that could endanger the US after they were mixed with Tornado Cash.
This year, $96 million flowing through Tornado Cash was traced to the Harmony Bridge hack and at least $7.8 million to the Nomad Bridge hack.
In the crypto community sanctions raise questions
The Tornado Cash code is also non-custodial. Tornado Cash is a code, an autonomous and decentralized protocol. It has no crypto. It’s just a blender. Punishing him is impossible.
Regulators can prevent people from using it. That’s what’s happening. After OFAC blocked 40 addresses that could be traced back to Tornado Cash, Circle blacklisted all addresses associated with Tornado on the same day. Tornado GitHub went offline, along with its website.
Clearly the integration of cryptocurrencies seems to have passed a tipping point. Preventing illicit activity is an essential stepping stone to further progress. But does that always mean regulatory oversight? The answer in the DeFi world is no: centralized control in any form is anathema. Posted by Cryptobtcbrowser, news and information agency.