One of the most highly-cited criticisms of crypto by politicians and lawmakers is money laundering, and platforms such as Tornado Cash are fueling this fire.
While it is true that plain old cash is still the money laundering currency of choice, cryptocurrencies have garnered a bad reputation among policymakers over recent years.
A number of high-profile crypto heists in recent weeks have highlighted the tools of the trade that hackers use to obfuscate their tracks. The Tornado Cash DeFi mixing service has become one of their favorites as it leaves a cold trail for crypto transactions, criminal or otherwise.
According to reports, the increasing popularity of these mixing services is fuelling money-laundering concerns even though they have not been classified as illegal by global regulators.
Crypto mixers are still legal
Crypto mixers have become increasingly popular since centralized exchanges, pressurized by governments, began demanding rafts of KYC (know-your-customer) information from their users.
Tornado Cash works by allowing users to deposit ERC-20 tokens into its smart contract along with a hash of a note identifying the transaction. After a period of time to further obfuscate the transaction, the user submits proof of a valid key to the note to the contract which allows them to withdraw the funds. It essentially breaks the link between the source and destination addresses using zero-knowledge proofs.
According to crypto experts cited by Yahoo! Finance, these services are not illegal despite being a top choice for hackers and criminals to launder money.
It added that hackers used Tornado Cash to wash $196 million of stolen crypto from the Bitmart exchange in December. Tornado Cash processed more than $10 billion worth of crypto transactions over the past year according to blockchain analysis firm AnChain. Victor Fang, CEO, and founder of AnChain, said:
“Privacy is not criminal but criminals are seeking these privacy solutions. This is the tip of the iceberg, the beginning of the future we’re going to see play out.”
Baby and the bathwater
The problem is that governments and lawmakers blame crypto itself for money laundering, not the tiny minority of criminals taking advantage of it using mixers.
According to the United Nations, roughly 2-5% of the $2 trillion in global growth gets laundered in fiat currencies each year. According to a recent Chainalysis report, around $8.6 billion per year gets laundered using cryptocurrencies, barely a fraction of the $40-$100 billion in cash equivalents.
The evidence is clear, cash is still king when it comes to money laundering, but the anti-crypto brigade will find a way to tell a different story, proposing broad sweeping crackdowns that will end up throwing the baby out with the bathwater.
BeInCrypto has reached out to company or individual involved in the story to get an official statement about the recent developments, but it has yet to hear back.