After US bans crypto mixing service Tornado Cash, experts call for regulation in India

By | August 9, 2022

The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) on Tuesday banned the popular virtual currency mixer Tornado Cash which, the US government says, has been used to launder more than $7 billion worth of cryptocurrency since its creation in 2019.

Tornado Cash (Tornado) is a cryptocurrency mixer that works on the Ethereum blockchain. It facilitates anonymous transactions by making it extremely difficult to trace crypto wallets. The mixer receives hundreds and thousands of transactions which are mixed before transferring them to an individual wallet.

For instance, say if you’d like to transfer some Bitcoin to another wallet. By using mixers, these funds will be sent to hundreds and thousands of wallets in fractions, before actually getting into the recipient’s wallet. It makes it almost impossible to retrieve the final address of the crypto wallet. While the purpose of privacy mixers like Tornado is to keep transactions anonymous, however, they are commonly used by cyber criminals to re-route the stolen funds.

“The mixer makes it excessively difficult for us to track the funds that are being laundered. Such mixers use a method called ‘peel off’. Every crypto is split into thousands of fractions and split across thousands of wallets. What makes a crypto mixer even more dangerous is when it is combined with a crypto exchange,” Bhagyashree Navtake, Deputy Commissioner of Police (DCP), cybercrime division, Pune told Navtake is a blockchain expert and specialises in crypto investigation.

However, she believes that in India banning crypto mixers alone won’t do much because cyber criminals could use VPN servers and still be able to access such mixers. “…what’s important is a dire need for regulation which could ensure that crypto exchanges and companies all are subjected to strict laws.”

According to the US government, Tornado mixers have also been used by the Lazarus Group for stealing over $455 million stolen, a Democratic People’s Republic of Korea (DPRK) state-sponsored hacking group that was sanctioned by the US in 2019, in the largest known virtual currency heist to date. Further, Tornado Cash has been subsequently used to launder more than $96 million of malicious cyber actors’ funds derived from the Harmony Bridge Heist, and at least $7.8 million from the Nomad Heist.

“Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors regularly and without basic measures to address its risks. Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them,” said Brian E. Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence.

Sharat Chandra, a blockchain evangelist, noted that “banning crypto mixers is a step in the right direction, and all nations including India should ban these tools to ensure global coordination in nabbing crypto criminals. India would take over the presidency of G20 in December this year. Therefore, it’s incumbent upon us to drive cooperation in tackling crypto crimes and ensure compliance.”

Leave a Reply

Your email address will not be published.