Benzinga - Sanctions on Tornado Cash, a decentralized mixing service on the Ethereum (CRYPTO: ETH) blockchain, by the United States Office of Foreign Assets Control (OFAC) had a significant impact on the platform, with inflows to the service falling by 68% in the 30 days following its designation.
The OFAC sanctioned Tornado Cash first in August and then in November 2022.
According to a Chainalysis report, the illicit activity on Tornado Cash was primarily concentrated on two forms of cybercrime: crypto hacks and scams and nearly all the illicit funds received by the service during the 60-day period prior to the sanctions were from stolen funds, with the majority of these funds coming in the form of periodic spikes.
One such spike was the Harmony Bridge hack, which occurred in June 2022 and accounted for 65.7% of the mixer's total stolen fund inflows during this period.
The sanctions, which targeted Tornado Cash for its role in facilitating money laundering, particularly in relation to funds stolen in cybercrimes associated with North Korea, resulted in the platform's front-end website being taken down, the report stated.
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“However, the platform's smart contracts can run indefinitely, meaning that anyone can still technically use the service at any time. This suggests that sanctions against decentralized services act more as a tool to disincentivize their use rather than cutting off usage completely,” the report added.
The case of Tornado Cash illustrates the difficulties regulators face when dealing with decentralized crypto entities.
Chainalysis stated that with no person or organization able to shut down the service as easily as they would with a centralized platform, it raises questions about the most effective ways to prevent illicit activity on decentralized platforms.
Meanwhile, according to recent research from blockchain security company SlowMist, a significant amount of funds flowed through Tornado Cash in 2022.
The report indicates that 1,233,129 Ether, valued at approximately $1.62 billion, was deposited onto the platform during the year, while an additional 1,283,186 ETH, worth roughly $1.7 billion, was withdrawn.
2/ In 2022, the AML dynamics for some groups were as follows:Next: Coinbase (NASDAQ:COIN) Lays Off 950 Employees: CEO Armstrong Blames 'Current Economic Climate And Crypto Market'Tether: A total of 250 #ETH addresses were blocked, and the #USDT-ERC20 on these addresses were frozen.
Circle: A total of 126 ETH addresses were blocked, and the #USDC-ERC20 on these addresses were frozen.
— SlowMist (@SlowMist_Team) January 9, 2023
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