Tornado Cash, a cryptocurrency mixer, has no intention of complying with the sanctions

The demand for transaction mixer has recently increased, according to the company.

Decentralisation, according to a co-founder, frees it from sanctions.

One of the founders of Tornado Cash, one of the most prominent services for obfuscating bitcoin transactions, stated that the company is exempt from the sanctions implemented in response to Russia’s invasion on Ukraine.

The protocol works by severing the link between the sender and receiver’s addresses on transactions sent across the Ethereum blockchain to protect privacy. The idea is built on smart contracts, which means that rather than individuals, pre-written software programmes make choices. It also doesn’t have a centralised host for its website or other custodian services. Individuals can utilise the Ethereum Name Service to access Tornado Cash, which is a distributed name system that does not require any login information, according to the co-founder, making it hard to police users.

“We don’t have any more access to it than any other protocol users,” says the researcher. In an interview from Thailand, Roman Semenov, one of Tornado Cash’s three creators, remarked. “We don’t have a lot of options.”

It’s possible that regulars don’t see it the same way. The protocol is likely to fall under regulations regulating virtual asset service providers, according to recommendations from the multination Financial Action Task Force, legal observers said. Even if the project is considered decentralised, creators and individuals who “keep control or significant influence” in the programme are likely obliged to have compliance procedures in place, including sanctions compliance.

“What the FATF is saying is, we don’t care what you call yourself, decentralised or DeFi, what we worry about is what you’re doing,” said Ari Redbord, head of legal and government affairs at blockchain intelligence startup TRM Labs.

Tornado Cash has exploded in popularity in the last year, becoming one of the most popular cryptocurrency mixers. According to data provided by Crystal Blockchain, the monthly value of Ether delivered to Tornado Cash soared in November as crypto markets reached new highs. The value of Bitcoin sent to Wasabi wallet, another similar mechanism for mixing Bitcoin transactions, surpassing the value of Bitcoin sent to Wasabi wallet. The increase is important because the price of Ether in dollars is substantially lower than the price of Bitcoin.

Tornado Cash’s dominance has grown in part due to the growing popularity of DeFi, which has resulted in more crypto wallets storing higher amounts of wealth, according to Nicolas Smart, director of blockchain intelligence and data at Crystal.

Tornado Cash, which was founded in 2019, is best known for its use by shady characters in the crypto space, such as the hackers who stole $34 million from Crypto.com in January or the crypto personality “Sifu,” who was involved with the Wonderland project and later became the co-founder of the failed crypto exchange QuadrigaCX.

Despite regulators’ increasing interest in crypto-focused sanctions, Semenov and his partners appear unconcerned about their positions.

He explained, “All we do is write code and post it on GitHub.” “Writing code cannot be unlawful since it is so close to the notion of free expression.”

The Tornado Cash co-founders are, in a sense, working decentralised. According to Semenov, the other two are based in Amsterdam and Seattle, respectively. Semenov remained tight-lipped about his nationality.

“In the case of Tornado Cash, donors fall under the “anonymizing software providers” term, which exempts them from money transmitter rules, according to FinCEN advice from 2019,” Semenov added. “Regardless of our citizenship, we follow all US requirements.”

Despite this, crypto mixers have been targeted. The founder of Bitcoin tumbling service Bitcoin Fog was arrested by US authorities last year. Another Bitcoin mixer’s owner pleaded guilty to assisting criminals in money laundering. Many Bitcoin mixers, unlike Tornado Cash, are considered unlawful, according to Semenov, because the services were custodial, meaning they handled users’ assets at one time.

“It turns them become money transmitters, and money transmitters are obligated to undertake KYC,” or know your customer checks, according to Semenov. “You have these safeguards in place because money transmitters have the ability to steal monies from users.”

Since hitting an all-time low in January, TORN, Tornado Cash’s native token, has more than doubled in value. According to CoinGecko, the price has dropped 8.8% in the last 24 hours.

TORN, as Tornado Cash’s governance token, grants its holders voting rights over protocol upgrades and other advancements. According to Semonov, the recent price increase was partly due to a tweak that encouraged TORN holders to stake or commit their tokens to the protocol’s smart contract in exchange for more token incentives.

Other privacy-oriented tokens have seen recent rises as well. According to TradingView and Binance, the price of Zcash has increased by more than 23% in the last week.

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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