Tornado Cash: Thin Lines of Privacy and Cybersecurity

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2022-08-13 20:16:54

On August 8, the US Department of the Treasury issued a special sanction decision against Tornado Cash – a platform that allows users to protect their privacy when transacting on the Ethereum blockchain – for its involvement in the Allegedly aiding in money laundering activities since 2019. That means the assets of any US citizen and organization located on the platform are also required to be frozen and reported to Office of Foreign Assets Control (OFAC).

Tornado Cash: Thin Lines of Privacy and Cybersecurity

A new underground storm has emerged in the DeFi market.

When DeFi can’t escape the “hands” of the government

Starting with Circle, the company behind one of the stablecoins with the largest market share in the crypto market – USDC, has moved to freeze 75,000 USDC belonging to Tornado Cash users as well as 149 USDC that was donated to this platform.

Following in the footsteps of Circle, infrastructure projects such as Infura, Alchemy and DEX exchanges such as dYdX, Balancer, or Uniswap also announced to block users from accessing Tornado Cash.

Notably, in response to Circle’s legal action, MakerDAO, the project behind the algorithmic stablecoin DAI, has hinted at selling USDC as a reserve asset to DAI to buy back ETH. . This action of MakerDAO has caused quite a bit of controversy, because it may indirectly push DAI into the path of LUNA-UST not too long ago: the price of ETH is likely to fall sharply, and the value of collateral for DAI is also pulled down, forcing Maker to sell ETH to anchor the price for DAI, and thus will further reduce the ETH price.

According to data on Defi Llama, in the past one week, USDC’s market cap has dropped about 1.02%, DAI is down about 2.85% while USDT has increased by 0.85%.

Tornado Cash and E-Gold Lessons

Until August 10, an individual from the Tornado Cash development team, Alexey Pertsev, was arrested by Dutch police. The crypto community on Twitter has been in shock after this decision, because they see it as an act that goes against freedom in a democratic society.

But the E-Gold lesson of Gold & Silver Reserve Inc. It was still there in the early 2000s. E-Gold is considered to be one of the precursor digital currencies of Bitcoin. Similar to Bitcoin, E-Gold can be exchanged anonymously on the Internet, and it is this factor that makes E-Gold a favorite tool for cybercriminals. A series of illegal activities such as fraud and money laundering have been carried out with E-Gold. In 2007, Douglas Jackson and his associates, who founded G&SR, were charged by the US Department of Justice with money laundering and organizing illegal money transfers. He was sentenced to 300 hours of community service, a $200 fine, and three years of house arrest.

When danger becomes the price of decentralization

Obviously, neither E-Gold nor Tornado Cash intends to be complicit with criminals, they just want to create platforms that can protect users’ privacy, a very legitimate need of any anyone.

But the very existence of Tornado Cash inadvertently creates a safe exit for cybercriminals with the illegal coins they earn. According to statistics from REKT Database, there have been nearly 3,000 attacks and scams in crypto so far with a total loss of more than 60 billion USD – approximately the capitalization of a coin ranked third in the market – one not a small number. And although the amount of money being returned is not much, just over 5% of the stolen funds, it is still a great effort in ensuring fairness for all market participants. crypto field.

Statistics of the amount of money lost from attacks in the crypto industry, according to REKT Database

Perhaps, it is time for the crypto community to question the role and importance of decentralization and financial freedom in the fairness and equality of all market participants. this.

Decentralization is created by blockchain to ensure fairness, but where is the justice when users are not protected from the evil forces that are always waiting to attack them?

Mai Phan

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