Tornado Cash sanctions crossed a line, says Circle CEO
US government sanctions against crypto mixer Tornado Cash crossed a line, and now the digital asset sector needs to sharpen its focus on policies tied to financial privacy, says Circle’s CEO.
“The regulatory intervention in this case crossed a major threshold in the history of the Internet, and the history of open blockchain finance, with a major government obliging parties to outright block or limit the functioning of open-source software on the Internet,” Allaire wrote Tuesday in a series of tweets on the US Treasury Department’s moves.
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Circle issues major stablecoin
Circle is the issuer of USDC, one of the world’s largest stablecoins. Allaire called for the entire industry to come together to insure investors’ privacy and the security of assets.
The company quickly complied with the sanctions by freezing USDC tied to Tornado Cash’s sanctioned website and cryptocurrency wallets.
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Turning point for industry
Allaire said Circle did the right thing by conforming with the sanctions and others in the past. But in a blog post, he said the sanctions against Tornado Cash marked a “turning point for the whole industry.”
“The U.S. government entered uncharted territory by sanctioning – and effectively imposing a ban on the use of – an open-source software protocol address that commingled assets from likely licit and illicit actors,” he wrote in the blog post.
“In our past engagements with law enforcement, there has long been a view that omnibus protocol addresses would be nearly impossible to sanction given the inherent consumer-protection issues.”
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Tornado Cash allegedly laundered funds
While imposing the sanctions on Monday, Treasury alleged that Tornado Cash allowed North Korean state-backed hackers and other illicit groups to launder billions of dollars. According to Treasury, Tornado Cash was used to launder more than $7bn worth of virtual currency since the company’s inception in 2019.
The regulator added Tornado Cash’s website and 44 wallets to the US sanctions list and prohibited Americans from doing business with them.
“[Treasury’s action] raises extraordinary questions about privacy and security on the Internet, and the future of public Internet digital currency,” Allaire tweted. “We have noted the tension between privacy and security as a policy matter – [on Monday], this stopped being an abstraction.”
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Mixer shields owner identities
A crypto mixer pools digital assets to shield their owners’ identities. While mixers are often used for legitimate privacy protection, they have also been used for illicit purposes.
Thus far, tweeted Allaire, crypto policy efforts have focused primarily on issues of market supervision and stablecoins and a global attempt to enhance anti-money-laundering and counter-terrorist financing.
Action needed now
“But the rapid growth of open source, self-running protocols is challenging policymakers everywhere, and the result, unfortunately, will be more blunt-force enforcement actions if we don’t take action now,” wrote Allaire.
Despite the US sanctions, Decrypt reported, an anonymous Internet troll sent ether (ETH), the main coin of the Ethereum blockchain, to celebrities from a Tornado Cash wallet. Recipients reportedly included late night TV talk show host Jimmy Fallon, Coinbase CEO Brian Armstrong and YouTuber Logan Paul.