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Source: TornadoCash Twitter

What the Tornado Cash Sanction Could Mean for Crypto Investors

Ruchi Gupta - Author
By

Aug. 9 2022, Published 3:41 a.m. ET

Popular crypto platform Tornado Cash has been sanctioned by the U.S. over its links to North Korean operatives. How does Tornado Cash work? Is Tornado Cash a North Korea-sponsored crypto hacking group? What does the Tornado Cash sanction mean for you?

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The Tornado Cash sanction marks another step in the Biden administration’s efforts to bring the crypto space under control. The administration also recently blacklisted a Tornado-like service called Blender, which is associated with Russia. Furthermore, it charged the people behind the Forsage crypto platform for running a Ponzi scheme.

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Source: TornadoCash Twitter
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How does Tornado Cash work?

Started in 2019, Tornado is a crypto mixing service that helps users conceal their crypto activities. When you transfer Bitcoin, Ethereum, or another crypto to Tornado, it gets mixed up in a pool with crypto from various other sources. You can then withdraw your funds to another crypto address, and no one will know its source.

Many people use Tornado for privacy reasons. However, bad actors have taken advantage of it for malicious activities, such as laundering stolen crypto funds.

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The Tornado Cash sanction, explained

In sanctioning Tornado Cash, the U.S. Treasury stated that the crypto mixer service failed to prevent laundering of illicit crypto funds on its platform. The government stated that North Korean-linked hacking group Lazarus had repeatedly used Tornado to launder stolen crypto funds. According to government estimates, Tornado has facilitated laundering of more than $7 billion in crypto funds since its start in 2019.

As a result, the U.S. views Tornado as a national security threat. The U.S. previously blacklisted Blender, another crypto mixer, on charges of facilitating crypto laundering for Russians.

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Is Tornado Cash a North Korea-sponsored crypto hacking group?

North Korean hacking group Lazarus is believed to have laundered more than $455 million through Tornado Cash. The group has been linked to various crypto heists, including a theft of $600 million at Ronin Network, which supports the popular NFT game Axie Infinity.

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The group is also believed to be behind the $100 million theft at crypto startup Harmony. The funds that Lazarus steals are thought to go into funding North Korea’s projects, including its nuclear weapons program.

Shortly after the U.S. announced the Tornado Cash sanction, secretary of state Antony Blinken tweeted that the platform was a North Korea-sponsored hacking group. An hour later, the official deleted the tweet.

What does the Tornado Cash sanction mean for you?

The Tornado Cash blacklisting means that Americans are prohibited from transacting on the platform even if they use it for legitimate operations, and you may face penalties if you violate the sanction. Without access to Tornado, Americans looking to hide their crypto activities may turn to private-focused cryptocurrencies such as Monero or Zcash.

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