Crypto: U.S. Treasury sanctions Tornado Cash over cyber-crime concerns
Yahoo Finance's David Hollerith joins the Live show to discuss the U.S. treasury sanctioning Tornado Cash.
Video transcript
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BRAD SMITH: Welcome back, everyone. The US Treasury has sanctioned Tornado Cash, so-called crypto mixing service, accusing it of laundering billions of dollars. Yahoo Finance's David Hollerith has the details. What do we need to know about Tornado Cash?
DAVID HOLLERITH: So, Brad, Tornado Cash is an open-- was an open source protocol, meaning the code was publicly available on the internet. And the program used sophisticated cryptography so that crypto and Web3 users could obscure the trail of funds that's normally transparently seen on a blockchain. Now OFAC added its website and associated addresses to its SDM list yesterday, citing the service's recurring use by North Korea's state sponsored hacking cohort Lazarus Group, which has been behind several of the major crypto hacks that have happened this year.
And US intelligence reports have connected stolen crypto to funding for its weapons program. So in the eyes of the US government, that connection seems like a clear national security issue. But after the announcement, its website was also taken off Google and the creator of Tornado Cash, Roman Semenov, had his account on GitHub-- Microsoft-owned GitHub removed.
Now this is typical-- this is just sort of typical ramifications of some sort of entity being sanctioned. However, crypto advocates and users of Tornado Cash have sort of rallied behind it, making the case that it's an argument or making the case that it's a violation of speech in a way. So what we know now is that the creators of Tornado Cash themselves, their locations remain undisclosed. But at this moment, unless there is another ongoing investigation that has not been revealed, they're not in immediate legal jeopardy. However, it does sort of point to the use of privacy in cryptocurrency, which, obviously, on a blockchain is otherwise just completely transparent.
BRIAN SOZZI: David, why would people use this service outside of illicit activity?
DAVID HOLLERITH: Yeah, Brian, it's a good question. I mean, I think that-- I think there's a lot of people coming out now who are sort of talking about why they would be used. One obvious use case that kind of occurred to me is that a lot of people do now-- I say a lot of people. A lot more than they used to do get paid in cryptocurrency partially by their salary.
Now, in that scenario, they can either receive their pay through a centralized cryptocurrency exchange. And in that event, they have this risk, which is that cryptocurrency exchanges aren't FDIC insured. So in the event of a hack, it's really just the goodwill of an exchange if they want to pay back their customers. Also, in a bankruptcy scenario, it's very unclear whether or not cryptocurrency users retain any rights to their assets.
In the courts, that's being decided right now. And it doesn't look super-- it doesn't look like it's leaning in favor of customers. So given that risk, another alternative is to use sort of a decentralized marketplace to get paid. And, effectively, unless the user or customer uses Tornado Cash, all of their financial information is available to their employer and anyone else who knows that that is their address.
So this is sort of-- it seems like a use case for average people. But that being said, Tornado Cash, at least according to OFAC, has laundered about $7 billion since 2019. So it's a tool, effectively. Just open source software that's available on the internet. And it can be used by anyone, so average people as well as bad actors.
JULIE HYMAN: Well, unfortunately, bad actors have been using it I guess. All right, thanks so much, David. Appreciate it.
