Tornado Cash was sanctioned and shut down by American authorities. Can Bitcoin withstand a similar attack?
Tornado Cash, a decentralized, automated version of a common cryptocurrency mixer, was sanctioned by the U.S. government last week after the Office of Foreign Assets Control (OFAC) of the Treasury Department added Ethereum addresses connected to the tool to its list of specially designated nationals and blocked individuals (SDN).
The legal implications of the Treasury Department’s action have received a great deal of attention. The aim is to objectively examine the technical nuances of Tornado Cash and its sanction, as well as assess potential hazards that could eventually affect Bitcoin, rather than starting an advocacy effort to contest the legal justifications of such a move. In its most basic form, a mixer accepts cryptocurrency deposits from users and pools or tumbles those inputs before allowing each user to withdraw the same number of coins that they deposited. Users gain a lot of prospective privacy by doing this since they obtain “new” coins that are unrelated to the ones they placed. The majority of mixers are handled centrally by an organization or company that charges for the aforementioned services. On the other side, Tornado Cash is a cryptocurrency mixer that has been implemented on the Ethereum blockchain as a smart contract. As a result, it resembles a robot more than an actual being; rather, it can be compared to an automated version of a standard cryptocurrency mixer. But it continues to function like a typical mixer. The Tornado Cash contract accepts cryptocurrency deposits from users and pools the cash while allowing withdrawals that are unrelated to the deposits. By utilizing strong cryptography techniques, Tornado Cash ensures user withdrawals are secure and anonymous. At its core, zk-SNARK proofs, which are known as the zero-knowledge succinct non-interactive argument of knowledge (zk-SNARK) proofs, are used to validate these assertions. Essentially, zk-SNARK and zero-knowledge proofs, in general, allow a subject to demonstrate a claim about a secret without disclosing the secret. Tornado Cash enables the user to validate their right to withdraw a specific number of coins from the smart contract without disclosing information about their deposits. In addition to the privacy advantages, the deposit note gives the user a higher level of security and control by allowing them to confidently withdraw their money from the mixer at any time. Tornado Cash is similar to a non-custodial service as a result of this feature because these “redeemable notes” serve as the cryptographic keys that unlock the user’s withdrawals. The US government and its enforcement agencies have long targeted cryptocurrency mixers. Tornado Cash would seem to be safe from such targeting given that it is a piece of autonomous code running on a blockchain as opposed to a centralized company. However, OFAC pursued it. In conclusion, given the complexity of its design, Bitcoin is perhaps the network most positioned to withstand nation-state attacks. Such an action is not only unlikely but also appears to be pointless to be taken because its effectiveness might simply not be amplified in comparison to what is currently done regarding money laundering with Bitcoin and CoinJoins. This is due to challenges with the enforcement of potential sanctions on Bitcoin privacy tools. Finally, the distinct features of CoinJoins and the structural differences their implementation poses to mixing, serve to further increase the unlikeliness of such an event.
Seth Hertlein, global head of policy at hardware wallet manufacturer Ledger, explains that the sanctioning of Tornado Cash in its entirety has adverse effects on law-abiding persons who used the product to safeguard their legitimate privacy interests. Ultimately, even if regulators shouldn’t go beyond their legislative jurisdiction, legal proceedings can drag on for years. Furthermore, since legality is based on jurisdiction, there is no universal definition of what is legal or unlawful. As a result, decentralized systems should be created with unstoppable, uncensorable networks that can survive capture or overreach.