8 ms·

So how does sanctioning defi work? Isn’t the whole point of it being decentralized to make it unsanctionable? If the government forces exchanges to reject any c

So how does sanctioning defi work? Isn’t the whole point of it being decentralized to make it unsanctionable? If the government forces exchanges to reject any coin that has ever touched a mixer won’t we just end up in a situation where every coin is unnaccessable given enough time?

pudo 4y ago
Yes. Exactly this is happening here, and not in a rhetorical way. And the US government have, you know, guns.
JumpCrisscross 4y ago
> Isn’t the whole point of it being decentralized to make it unsanctionable? Why would this be expected? Cash is decentralized. That didn't prevent countries from sanctioning things.
- colinmhayes 4y ago
  Cash itself has never been sanctioned though? If the government said “we’re now keeping a database of cash serial numbers that are hereby banned” would everyone need to install the “cash checker” app and scan each bill they receive?
  - JumpCrisscross 4y ago
    > Cash itself has never been sanctioned though? Ethereum isn't being sanctioned. Tornado is. If you transact with Tornado, you're in violation of the law. If you don't, you're not, whether you use Ether or not. > if the government said “we’re now keeping a database of cash serial numbers that are hereby banned” would everyone need to install the “cash checker” app and scan each bill they receive? Law enforcement has long used marked bills [1]. The cash isn't "cancelled." If you randomly end up with one, you're fine, in the same way that if you unknowingly end up transacting with a wallet that transacted with a wallet that touched Tornado, you're also probably fine. But if your garage has a box of marked bills, or if your wallet did a big transaction with another wallet that does lots of Tornado activity, you're going to be on law enforcement's radar. [1] https://en.wikipedia.org/wiki/Marked_bill#cite_note-4 https://en.wikipedia.org/wiki/Marked_bill#cite_note-4
    - colinmhayes 4y ago
      I just don’t see how the government can go about proving you received the money because you sent to it a mixer vs receiving it from a seemingly legal transaction with someone else who mixed it. Especially with defi exchanges that I doubt will check if coins have been mixed.
      - acdha 4y ago
        Flip that around the other way: you are identified having received a transaction at the end of a chain from some crime with serious consequences. Do you want to have to prove to their satisfaction that you had no knowledge of this and aren’t part of some cartel’s money laundering operation? Can you keep doing that each time you use a mixer or does that start to look like a pattern where they stop believing you? Is there anything in your life that is innocent but could be strung together by an ambitious investigator? (e.g. your roommate’s boyfriend is Colombian, now you’re both getting questions and I hope he’s not self-employed) It’s that grind which is fatal for mixers, not unlike Tor exit nodes. Nobody _needs_ to use them except money launderers but they depend on benign traffic for concealment. Even most privacy-minded people are going to hesitate if it taints their ability to make transactions with regulated businesses and the less innocent traffic there is, the more likely it is that using one will attract scrutiny, accelerating that feedback loop since most people don’t want to deal with the risk even if they are totally innocent. The other level to consider: this mentions DPRK. That means all of the intelligence agencies could be involved and that increases the odds that a mixer is compromised or even run by them as a honeypot. Think about how you can decide whether to trust one, and whether the odds are that you’re signing up for additional privacy invasion like the people who’ve used certain messaging systems or VPNs.
    - concordDance 4y ago
      > If you transact with Tornado, you're in violation of US law. Fixed it for you. There's a tendency, particularly in the USA for people to assume that their law is universal
      - shakezula 4y ago
  - SXX 4y ago
    At least on government and banking level there are sanctiona against bring cash USD / EUR to Russia and might be Iran / North Korea. Private person can do that, but any bank or country that will sell cash to Putin's regime will likely end up being sanctioned too.
    - ipaddr 4y ago
      Like Germany?
      - SXX 4y ago
        Germany dont send real paper US dollars or EUR to Russia. Instead Russia just get some more numbers on Gazprombank correspondent bank account in some EU financial institution. There is a huge difference between what can be done with paper money vs numbers on traceable bank account.
  - Arainach 4y ago
    Nothing so brash. Make the largest banks check (the federal reserve already does), and add consequences on handling banned bills that will encourage smaller customers to check before they get to thr FR level.
  - deleted 4y ago
    [deleted]
  - specialp 4y ago
    Cash has to be physically sent somewhere else. There are already restrictions on large amounts of cash (> $10000) where large transactions must be reported to the government, and it must be declared entering or exiting the country. This is why smuggling cash out of the USA from drug proceeds is a very challenging issue for cartels. But crypto cannot be physically inspected at international borders. So for the government, just like wire transfers, they want to know the source and recipient of such funds. If there were a service where you could bring a large amount of cash, obfuscate the origin, then wire it to a bunch of bank accounts under criminal control, that would be the definition of money laundering and also cracked down on. In this case if Coinbase took some BTC that went through Tornado it would be equivalent to taking a wire transfer from a bank known to be laundering money.
    - notch656a 4y ago
      The US has effectively no customs on leaving the country. I doubt those wanting to leave with cash have it that bad.
      - leeter 4y ago
        If you're taking 10k or more in cash out of the country and fail to file a fincen-105 you can have all of the cash sized with no recourse. CBP regularly uses cash sniffing dogs for this purpose. https://www.fincen.gov/sites/default/files/shared/fin105_cmir.pdf https://www.fincen.gov/sites/default/files/shared/fin105_cmi...
        notch656a 4y ago
        CBP has an alert on my passport and I'm flagged as being a bad-boy with insane amount of grilling (and illegal jailing, strip-search, ~16 hour detainment, the works) every time I enter the country. Even I have never been searched leaving the country. I'm sure it happens but I think it is quite rare. I repeat myself, there is effectively no customs leaving the country even if you are flagged as most-high-risk as I am. >CBP regularly uses cash sniffing dogs for this purpose. The dogs are just probable cause generating machines. Had one of these dogs "sniff my asshole" and the agents got a warrant for me to forcibly be taken to the hospital to be "internally examined." (and I was sent the bill by the hospital, both ERs they took me to ~60 miles apart even though I never consented to any of it) The dog never alerted. It's just cover so they can get a warrant whenever they want. Yeah I'm aware it's illegal to not report on the way out, I'm only saying it seems unlikely criminals doing that are going to get caught.
  - leeter 4y ago
    It's never been sanctioned but it is tracked. Every single time cash (the physical printed bills) flows through a federal reserve branch or even some mainline banks the serial is noted and reported to a database. They do this in case money known to be tainted (stolen, counterfeit etc.) shows up. So if a bill with a flagged serial number comes up that info is forwarded to the FBI/Secret service. That doesn't mean they'll come knocking on your door if you deposit a single tainted note, it just tells them that the note somehow made it to your locality. But if you deposited a ton of them all at once? Yes you'd probably get a visit and some very pointed questions on where you got them and how. This has happened a few times when people found cash from robberies (the D.B cooper case being one). https://en.wikipedia.org/wiki/D._B._Cooper#Recovered_ransom_money https://en.wikipedia.org/wiki/D._B._Cooper#Recovered_ransom_... Most people have probably deposited a counterfeit bill and never known it too. Again singular bills are not a problem. They just tell the secret service to keep an eye on that locality and potentially contact businesses that saw the counterfeits come in assuming those businesses didn't flag it themselves.
  - jeffbee 4y ago
    There's a reason that you can't walk into Goldman Sachs and open a trading account with a box full of cash. They can't tell where it came from. In certain respects, cash is sanctioned.
  - deleted 4y ago
    [deleted]
  - giaour 4y ago
    > If the government said “we’re now keeping a database of cash serial numbers that are hereby banned” would everyone need to install the “cash checker” app and scan each bill they receive? This database exists, but only banks and police evidence clerks check cash against it. > Cash itself has never been sanctioned though? Most countries have a strict limit on the amount of cash you're allowed to carry over the border.
  - cesarb 4y ago
    > If the government said “we’re now keeping a database of cash serial numbers that are hereby banned” would everyone need to install the “cash checker” app and scan each bill they receive? I recall something like that happening when I was younger. This was long ago, in the pre-Internet days, so unfortunately I haven't been able to find anything about it online; this is only my distant recollection. There was a theft of a large amount of new bank notes, which hadn't yet entered circulation. The government distributed a list of the ranges of bank notes (since the notes were newly printed, they were in large sequential ranges), and every cashier in the whole country (for instance, in supermarkets) had to check every note they received against that list; since the notes in question hadn't entered circulation yet, they could be treated as if they were counterfeit. (Since as far as I recall this happened back in the hyperinflation days, and the whole currency has been replaced one or more times since then, there is no longer any need to check against that list.)
  - deleted 4y ago
    [deleted]
tevon 4y ago
Without digging deeper into the protocol, I imagine these sanctions may be completely ineffective. The announcement says they are sanctioning 40 addresses associated with Tornado, can't those addresses be cycled out of commission and a new set be put in place?
- JumpCrisscross 4y ago
  > can't those addresses be cycled out of commission and a new set be put in place? That gets harder when the employees start getting arrested, the bank accounts Tornado uses to pay them start getting frozen, domains seized, et cetera, at Tornado and at every identified wallet that transacts with it.
  - colinmhayes 4y ago
    Does tornado even have employees? I guess they can seize the front end domain, but the actual defi protocol is decentralized, how do you freeze that?
    - JumpCrisscross 4y ago
      > the actual defi protocol is decentralized, how do you freeze that? You don’t. You just keep nailing people to touch it. Sanctions make things difficult for someone. Nobody expects them to e.g. poof Pyongyang.
      - nostrademons 4y ago
        It takes about 10 minutes to deploy the existing tornado.cash smart contract to a new address, and can be done with freshly-mined ether. Some kid in Russia could do it and the U.S. government would never know who he is nor have jurisdiction to touch him. There are no need for employees, servers, domains, whatever. Once it's upon on the blockchain again, its existence serves as a schelling point for people to use it. This is much more like a pandemic than a war. In a war you know who your enemy is, you can see them making preparations and organizing forces, and you can counter them with your own moves. In a pandemic, somebody sneezes in Wuhan and 10 million people die. Any attempts to regulate folks who might've touched dirty things just piss people off.
zaphar 4y ago
They can track all funds that exit the mixer. They may not know how those funds got in the mixer but they can require all exchanges that have a legal presence under their jurisdication to reject any funds who's history originates from the mixer. And yes, taken to an extreme it does indeed mean that every coin becomes inaccessible given enough time. Welcome to the real world consequences of interacting with systems that are counter to wider societies aims.
- concordDance 4y ago
  > Welcome to the real world consequences of interacting with systems that are counter to wider societies aims. I don't think there's good evidence that this is counter to broader society's aims, just that it's counter to the power of the US state (which always wants its power to grow).
  - lern_too_spel 4y ago
    The people have voted that they would rather have KYC than criminal organizations operating at scale and foreign governments stealing from Americans. You may disagree, but your position is against that of society at large. You are perfectly free to exit society and transact only outside it.
    - Sargos 4y ago
      There has never been a vote on KYC/AML policies and my research does not turn up any neutral sources suggesting the population strongly supports these rules. In fact history shows that these rules are almost all dictated by a small group of people with little to no public input. Over a hundred years ago none of these laws existed and society survived. 100 years from now I doubt these concepts will be widespread and society will still function well.
      - lern_too_spel 4y ago
        Without these laws, the wealthy don't pay taxes, criminal organizations grow without bound, and foreign governments easily avoid sanctions. As money movement became easier, so governments couldn't stop that movement by issuing letters of marque, these laws became essential.
game-of-throws 4y ago
To me this feels similar to how most paper cash has traces of cocaine.[1] LEO will seize the cash, but if they re-enter it into circulation the cash becomes legitimate again. You're not liable if you spend the same contaminated dollar bill that a drug dealer once used, but you would be liable if you did business with that drug dealer. [1]: https://en.wikipedia.org/wiki/Contaminated_currency https://en.wikipedia.org/wiki/Contaminated_currency
- birdyrooster 4y ago
  Except this isn't currency. This is property (a definition given by the SEC) which has a completely different legal standard. There is no excuse of ignorance for receiving and selling stolen property or property used in service of a crime. It's an open secret that crypto is being used for illegal activity because it is not being enforced currently.
  - Sinbe 4y ago
    > There is no excuse of ignorance for receiving and selling stolen property or property used in service of a crime Let's say your public address is public, all your net worth is there. A tainted account can send a small amount to you, nothing you can do about it. Is your account now tainted as well? If yes then bad actors now have a powerful tool of wealth destruction.
NovemberWhiskey 4y ago
You're not sanctioning a mechanism; you're sanctioning an entity.
- colinmhayes 4y ago
  But it’s an entity that is decentralized, and theoretically has no owner. It’s just an address that takes coins as input and spits them out somewhere else. I don’t think etherium itself will agree to let the government ban people from sending their coins to a certain address, so I’m struggling to see who exactly the government will be going after.
  - NovemberWhiskey 4y ago
    How do you think the government goes after exports to e.g. North Korea? It goes after people doing the exporting, not the North Koreans.
  - kube-system 4y ago
    None of that matters. Sanctions allow the government to prosecute anyone who does transactions with the sanctioned entity. Period. It doesn't matter how the technology works or whether the facilitators of those transactions cooperate with anyone else on anything.
    - colinmhayes 4y ago
      Well how do you know someone sent their coins through a mixer? If they’re dumb and go straight from mixer to an exchange it’s easy, but what if they trade the mixed coins for an nft? Is the former nft owner now implicated?
      - kube-system 4y ago
        How do you know the cash you got out of the ATM hasn't been in North Korea? You don't, and you wouldn't be guilty of sanctions violations even if they were. You violate sanctions if you transact with a sanctioned entity. It is that simple. If the NFT owner accepts coins from a sanctioned address, then yes, they have violated sanctions.
harporoeder 4y ago
As far as I understand coins don't have a unique ID rather wallets have balances. There is not a list of serial numbers to compare against. So if you want to ensure money is not coming from a mixer you have to look at the flow graph of transactions. But this line is kind of unclear. One one extreme you could ban any wallet that has used a mixer, on the other extreme you could ban every wallet that is anywhere in the graph involved with a mixer for example someone that used a mixer sends you money for coffee, you send someone else money, and now all three of you are banned, which probably trends towards a substantial portion of the network.
- anticensor 4y ago
  Depends on the type of cryptocurrency. Ethereum is an account number system. Bitcoin and Monero are TXIN/TXO systems.
kube-system 4y ago
Sanctions don't make the coins illegal, they make it illegal for anyone to do transactions with an entity.
- olalonde 4y ago
  Which entity? Users of Tornado Cash? Their developers? As a business accepting Ethereum, how do I know whether my customer has used Tornado Cash in the past? It's not really possible to know unless the customer volunteers the information.
  - kube-system 4y ago
    These entities: https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20220808 https://home.treasury.gov/policy-issues/financial-sanctions/... > As a business accepting Ethereum, how do I know whether my customer has used Tornado Cash in the past? Why does that matter? You need to make sure you don't break sanctions. You don't have to worry about other people.
    - olalonde 4y ago
      I guess they just don't really understand how Ethereum works? The minute whoever controls those addresses transfers the ETH out to some other addresses (a cheap/trivial operation) the sanctions are obsolete. Are you not phased at all by the inaneness of it?
      - kube-system 4y ago
        It may seem inane if you assume that the only purpose of the sanction is to prevent the money from being transferred. It could be that they have enough parallel information that they know who controls these addresses and they're just waiting for someone to violate these new sanctions :)
        deleted 4y ago
        [deleted]
uncomputation 4y ago
This is kind of a misconception a lot of people have about law. Especially in crypto, you’ll hear people gape “oh what, the government is going to ban random numbers? oh, the government is gonna ban something they can’t shut down?” I guess they imagine something more dramatic like secret police doing sting operations against every crypto user out there. In reality, they’re making a new stick i.e. once they have already decided to prosecute you for something, if they can show you used a mixer, this will be just a new charge to throw at you or a multiplier on your sentence. I’m finding it a little difficult to put into words succinctly but as an example, they’re still going to after e.g. Coinbase: the big guys. They’re not gonna track down every party interacting with any mixer and prosecute because that’s hugely resource intensive. But now when they go after e.g. Coinbase, they have a new tool in their belt. (IMO IANAL.)
- birdyrooster 4y ago
  I am sure they see Coinbase as being part of a gigantic racketeering operation where the whales game government and finance to facilitate black markets.
- salawat 4y ago
  This is a structural practice our government tends to favor. They can regulate larger actors and keep them in line more easily in order to limit the options for misbehavior downstream. To employ in the U.S., you have to report what you paid people to the tax authorities. The employer can employ and do commerce on condition of compliance and the good grace of government recognition. Individuals, in the end can do whatever they want as long as the paper trail is managed by the economic machine.
birdyrooster 4y ago
The fed is going to shutdown crypto because to do business is to implicitly be party to a racket. It has no real uses beyond the black market as we have learned over the past 14 years.
giaour 4y ago
> Isn’t the whole point of it being decentralized to make it unsanctionable? No. Guns and bullets are decentralized, but murder is still illegal. Law enforcement agents can investigate crime committed using crypto just like they can investigate crime committed using any other instrument.

pudo 4y ago

Yes. Exactly this is happening here, and not in a rhetorical way. And the US government have, you know, guns.

JumpCrisscross 4y ago

> Isn’t the whole point of it being decentralized to make it unsanctionable? Why would this be expected? Cash is decentralized. That didn't prevent countries from sanctioning things.

colinmhayes 4y ago
Cash itself has never been sanctioned though? If the government said “we’re now keeping a database of cash serial numbers that are hereby banned” would everyone need to install the “cash checker” app and scan each bill they receive?
- JumpCrisscross 4y ago
  > Cash itself has never been sanctioned though? Ethereum isn't being sanctioned. Tornado is. If you transact with Tornado, you're in violation of the law. If you don't, you're not, whether you use Ether or not. > if the government said “we’re now keeping a database of cash serial numbers that are hereby banned” would everyone need to install the “cash checker” app and scan each bill they receive? Law enforcement has long used marked bills [1]. The cash isn't "cancelled." If you randomly end up with one, you're fine, in the same way that if you unknowingly end up transacting with a wallet that transacted with a wallet that touched Tornado, you're also probably fine. But if your garage has a box of marked bills, or if your wallet did a big transaction with another wallet that does lots of Tornado activity, you're going to be on law enforcement's radar. [1] https://en.wikipedia.org/wiki/Marked_bill#cite_note-4 https://en.wikipedia.org/wiki/Marked_bill#cite_note-4
  - colinmhayes 4y ago
    I just don’t see how the government can go about proving you received the money because you sent to it a mixer vs receiving it from a seemingly legal transaction with someone else who mixed it. Especially with defi exchanges that I doubt will check if coins have been mixed.
    - acdha 4y ago
      Flip that around the other way: you are identified having received a transaction at the end of a chain from some crime with serious consequences. Do you want to have to prove to their satisfaction that you had no knowledge of this and aren’t part of some cartel’s money laundering operation? Can you keep doing that each time you use a mixer or does that start to look like a pattern where they stop believing you? Is there anything in your life that is innocent but could be strung together by an ambitious investigator? (e.g. your roommate’s boyfriend is Colombian, now you’re both getting questions and I hope he’s not self-employed) It’s that grind which is fatal for mixers, not unlike Tor exit nodes. Nobody _needs_ to use them except money launderers but they depend on benign traffic for concealment. Even most privacy-minded people are going to hesitate if it taints their ability to make transactions with regulated businesses and the less innocent traffic there is, the more likely it is that using one will attract scrutiny, accelerating that feedback loop since most people don’t want to deal with the risk even if they are totally innocent. The other level to consider: this mentions DPRK. That means all of the intelligence agencies could be involved and that increases the odds that a mixer is compromised or even run by them as a honeypot. Think about how you can decide whether to trust one, and whether the odds are that you’re signing up for additional privacy invasion like the people who’ve used certain messaging systems or VPNs.
  - concordDance 4y ago
    > If you transact with Tornado, you're in violation of US law. Fixed it for you. There's a tendency, particularly in the USA for people to assume that their law is universal
    - shakezula 4y ago
- SXX 4y ago
  At least on government and banking level there are sanctiona against bring cash USD / EUR to Russia and might be Iran / North Korea. Private person can do that, but any bank or country that will sell cash to Putin's regime will likely end up being sanctioned too.
  - ipaddr 4y ago
    Like Germany?
    - SXX 4y ago
      Germany dont send real paper US dollars or EUR to Russia. Instead Russia just get some more numbers on Gazprombank correspondent bank account in some EU financial institution. There is a huge difference between what can be done with paper money vs numbers on traceable bank account.
- Arainach 4y ago
  Nothing so brash. Make the largest banks check (the federal reserve already does), and add consequences on handling banned bills that will encourage smaller customers to check before they get to thr FR level.
- deleted 4y ago
  [deleted]
- specialp 4y ago
  Cash has to be physically sent somewhere else. There are already restrictions on large amounts of cash (> $10000) where large transactions must be reported to the government, and it must be declared entering or exiting the country. This is why smuggling cash out of the USA from drug proceeds is a very challenging issue for cartels. But crypto cannot be physically inspected at international borders. So for the government, just like wire transfers, they want to know the source and recipient of such funds. If there were a service where you could bring a large amount of cash, obfuscate the origin, then wire it to a bunch of bank accounts under criminal control, that would be the definition of money laundering and also cracked down on. In this case if Coinbase took some BTC that went through Tornado it would be equivalent to taking a wire transfer from a bank known to be laundering money.
  - notch656a 4y ago
    The US has effectively no customs on leaving the country. I doubt those wanting to leave with cash have it that bad.
    - leeter 4y ago
      If you're taking 10k or more in cash out of the country and fail to file a fincen-105 you can have all of the cash sized with no recourse. CBP regularly uses cash sniffing dogs for this purpose. https://www.fincen.gov/sites/default/files/shared/fin105_cmir.pdf https://www.fincen.gov/sites/default/files/shared/fin105_cmi...
      - notch656a 4y ago
        CBP has an alert on my passport and I'm flagged as being a bad-boy with insane amount of grilling (and illegal jailing, strip-search, ~16 hour detainment, the works) every time I enter the country. Even I have never been searched leaving the country. I'm sure it happens but I think it is quite rare. I repeat myself, there is effectively no customs leaving the country even if you are flagged as most-high-risk as I am. >CBP regularly uses cash sniffing dogs for this purpose. The dogs are just probable cause generating machines. Had one of these dogs "sniff my asshole" and the agents got a warrant for me to forcibly be taken to the hospital to be "internally examined." (and I was sent the bill by the hospital, both ERs they took me to ~60 miles apart even though I never consented to any of it) The dog never alerted. It's just cover so they can get a warrant whenever they want. Yeah I'm aware it's illegal to not report on the way out, I'm only saying it seems unlikely criminals doing that are going to get caught.
- leeter 4y ago
  It's never been sanctioned but it is tracked. Every single time cash (the physical printed bills) flows through a federal reserve branch or even some mainline banks the serial is noted and reported to a database. They do this in case money known to be tainted (stolen, counterfeit etc.) shows up. So if a bill with a flagged serial number comes up that info is forwarded to the FBI/Secret service. That doesn't mean they'll come knocking on your door if you deposit a single tainted note, it just tells them that the note somehow made it to your locality. But if you deposited a ton of them all at once? Yes you'd probably get a visit and some very pointed questions on where you got them and how. This has happened a few times when people found cash from robberies (the D.B cooper case being one). https://en.wikipedia.org/wiki/D._B._Cooper#Recovered_ransom_money https://en.wikipedia.org/wiki/D._B._Cooper#Recovered_ransom_... Most people have probably deposited a counterfeit bill and never known it too. Again singular bills are not a problem. They just tell the secret service to keep an eye on that locality and potentially contact businesses that saw the counterfeits come in assuming those businesses didn't flag it themselves.
- jeffbee 4y ago
  There's a reason that you can't walk into Goldman Sachs and open a trading account with a box full of cash. They can't tell where it came from. In certain respects, cash is sanctioned.
- deleted 4y ago
  [deleted]
- giaour 4y ago
  > If the government said “we’re now keeping a database of cash serial numbers that are hereby banned” would everyone need to install the “cash checker” app and scan each bill they receive? This database exists, but only banks and police evidence clerks check cash against it. > Cash itself has never been sanctioned though? Most countries have a strict limit on the amount of cash you're allowed to carry over the border.
- cesarb 4y ago
  > If the government said “we’re now keeping a database of cash serial numbers that are hereby banned” would everyone need to install the “cash checker” app and scan each bill they receive? I recall something like that happening when I was younger. This was long ago, in the pre-Internet days, so unfortunately I haven't been able to find anything about it online; this is only my distant recollection. There was a theft of a large amount of new bank notes, which hadn't yet entered circulation. The government distributed a list of the ranges of bank notes (since the notes were newly printed, they were in large sequential ranges), and every cashier in the whole country (for instance, in supermarkets) had to check every note they received against that list; since the notes in question hadn't entered circulation yet, they could be treated as if they were counterfeit. (Since as far as I recall this happened back in the hyperinflation days, and the whole currency has been replaced one or more times since then, there is no longer any need to check against that list.)
- deleted 4y ago
  [deleted]

tevon 4y ago

Without digging deeper into the protocol, I imagine these sanctions may be completely ineffective. The announcement says they are sanctioning 40 addresses associated with Tornado, can't those addresses be cycled out of commission and a new set be put in place?

JumpCrisscross 4y ago
> can't those addresses be cycled out of commission and a new set be put in place? That gets harder when the employees start getting arrested, the bank accounts Tornado uses to pay them start getting frozen, domains seized, et cetera, at Tornado and at every identified wallet that transacts with it.
- colinmhayes 4y ago
  Does tornado even have employees? I guess they can seize the front end domain, but the actual defi protocol is decentralized, how do you freeze that?
  - JumpCrisscross 4y ago
    > the actual defi protocol is decentralized, how do you freeze that? You don’t. You just keep nailing people to touch it. Sanctions make things difficult for someone. Nobody expects them to e.g. poof Pyongyang.
    - nostrademons 4y ago
      It takes about 10 minutes to deploy the existing tornado.cash smart contract to a new address, and can be done with freshly-mined ether. Some kid in Russia could do it and the U.S. government would never know who he is nor have jurisdiction to touch him. There are no need for employees, servers, domains, whatever. Once it's upon on the blockchain again, its existence serves as a schelling point for people to use it. This is much more like a pandemic than a war. In a war you know who your enemy is, you can see them making preparations and organizing forces, and you can counter them with your own moves. In a pandemic, somebody sneezes in Wuhan and 10 million people die. Any attempts to regulate folks who might've touched dirty things just piss people off.

zaphar 4y ago

They can track all funds that exit the mixer. They may not know how those funds got in the mixer but they can require all exchanges that have a legal presence under their jurisdication to reject any funds who's history originates from the mixer. And yes, taken to an extreme it does indeed mean that every coin becomes inaccessible given enough time. Welcome to the real world consequences of interacting with systems that are counter to wider societies aims.

concordDance 4y ago
> Welcome to the real world consequences of interacting with systems that are counter to wider societies aims. I don't think there's good evidence that this is counter to broader society's aims, just that it's counter to the power of the US state (which always wants its power to grow).
- lern_too_spel 4y ago
  The people have voted that they would rather have KYC than criminal organizations operating at scale and foreign governments stealing from Americans. You may disagree, but your position is against that of society at large. You are perfectly free to exit society and transact only outside it.
  - Sargos 4y ago
    There has never been a vote on KYC/AML policies and my research does not turn up any neutral sources suggesting the population strongly supports these rules. In fact history shows that these rules are almost all dictated by a small group of people with little to no public input. Over a hundred years ago none of these laws existed and society survived. 100 years from now I doubt these concepts will be widespread and society will still function well.
    - lern_too_spel 4y ago
      Without these laws, the wealthy don't pay taxes, criminal organizations grow without bound, and foreign governments easily avoid sanctions. As money movement became easier, so governments couldn't stop that movement by issuing letters of marque, these laws became essential.

game-of-throws 4y ago

To me this feels similar to how most paper cash has traces of cocaine.[1] LEO will seize the cash, but if they re-enter it into circulation the cash becomes legitimate again. You're not liable if you spend the same contaminated dollar bill that a drug dealer once used, but you would be liable if you did business with that drug dealer. [1]: https://en.wikipedia.org/wiki/Contaminated_currency https://en.wikipedia.org/wiki/Contaminated_currency

birdyrooster 4y ago
Except this isn't currency. This is property (a definition given by the SEC) which has a completely different legal standard. There is no excuse of ignorance for receiving and selling stolen property or property used in service of a crime. It's an open secret that crypto is being used for illegal activity because it is not being enforced currently.
- Sinbe 4y ago
  > There is no excuse of ignorance for receiving and selling stolen property or property used in service of a crime Let's say your public address is public, all your net worth is there. A tainted account can send a small amount to you, nothing you can do about it. Is your account now tainted as well? If yes then bad actors now have a powerful tool of wealth destruction.

NovemberWhiskey 4y ago

You're not sanctioning a mechanism; you're sanctioning an entity.

colinmhayes 4y ago
But it’s an entity that is decentralized, and theoretically has no owner. It’s just an address that takes coins as input and spits them out somewhere else. I don’t think etherium itself will agree to let the government ban people from sending their coins to a certain address, so I’m struggling to see who exactly the government will be going after.
- NovemberWhiskey 4y ago
  How do you think the government goes after exports to e.g. North Korea? It goes after people doing the exporting, not the North Koreans.
- kube-system 4y ago
  None of that matters. Sanctions allow the government to prosecute anyone who does transactions with the sanctioned entity. Period. It doesn't matter how the technology works or whether the facilitators of those transactions cooperate with anyone else on anything.
  - colinmhayes 4y ago
    Well how do you know someone sent their coins through a mixer? If they’re dumb and go straight from mixer to an exchange it’s easy, but what if they trade the mixed coins for an nft? Is the former nft owner now implicated?
    - kube-system 4y ago
      How do you know the cash you got out of the ATM hasn't been in North Korea? You don't, and you wouldn't be guilty of sanctions violations even if they were. You violate sanctions if you transact with a sanctioned entity. It is that simple. If the NFT owner accepts coins from a sanctioned address, then yes, they have violated sanctions.

harporoeder 4y ago

As far as I understand coins don't have a unique ID rather wallets have balances. There is not a list of serial numbers to compare against. So if you want to ensure money is not coming from a mixer you have to look at the flow graph of transactions. But this line is kind of unclear. One one extreme you could ban any wallet that has used a mixer, on the other extreme you could ban every wallet that is anywhere in the graph involved with a mixer for example someone that used a mixer sends you money for coffee, you send someone else money, and now all three of you are banned, which probably trends towards a substantial portion of the network.

anticensor 4y ago
Depends on the type of cryptocurrency. Ethereum is an account number system. Bitcoin and Monero are TXIN/TXO systems.

kube-system 4y ago

Sanctions don't make the coins illegal, they make it illegal for anyone to do transactions with an entity.

olalonde 4y ago
Which entity? Users of Tornado Cash? Their developers? As a business accepting Ethereum, how do I know whether my customer has used Tornado Cash in the past? It's not really possible to know unless the customer volunteers the information.
- kube-system 4y ago
  These entities: https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20220808 https://home.treasury.gov/policy-issues/financial-sanctions/... > As a business accepting Ethereum, how do I know whether my customer has used Tornado Cash in the past? Why does that matter? You need to make sure you don't break sanctions. You don't have to worry about other people.
  - olalonde 4y ago
    I guess they just don't really understand how Ethereum works? The minute whoever controls those addresses transfers the ETH out to some other addresses (a cheap/trivial operation) the sanctions are obsolete. Are you not phased at all by the inaneness of it?
    - kube-system 4y ago
      It may seem inane if you assume that the only purpose of the sanction is to prevent the money from being transferred. It could be that they have enough parallel information that they know who controls these addresses and they're just waiting for someone to violate these new sanctions :)
      - deleted 4y ago
        [deleted]

uncomputation 4y ago

This is kind of a misconception a lot of people have about law. Especially in crypto, you’ll hear people gape “oh what, the government is going to ban random numbers? oh, the government is gonna ban something they can’t shut down?” I guess they imagine something more dramatic like secret police doing sting operations against every crypto user out there. In reality, they’re making a new stick i.e. once they have already decided to prosecute you for something, if they can show you used a mixer, this will be just a new charge to throw at you or a multiplier on your sentence. I’m finding it a little difficult to put into words succinctly but as an example, they’re still going to after e.g. Coinbase: the big guys. They’re not gonna track down every party interacting with any mixer and prosecute because that’s hugely resource intensive. But now when they go after e.g. Coinbase, they have a new tool in their belt. (IMO IANAL.)

birdyrooster 4y ago
I am sure they see Coinbase as being part of a gigantic racketeering operation where the whales game government and finance to facilitate black markets.
salawat 4y ago
This is a structural practice our government tends to favor. They can regulate larger actors and keep them in line more easily in order to limit the options for misbehavior downstream. To employ in the U.S., you have to report what you paid people to the tax authorities. The employer can employ and do commerce on condition of compliance and the good grace of government recognition. Individuals, in the end can do whatever they want as long as the paper trail is managed by the economic machine.

birdyrooster 4y ago

The fed is going to shutdown crypto because to do business is to implicitly be party to a racket. It has no real uses beyond the black market as we have learned over the past 14 years.

giaour 4y ago

> Isn’t the whole point of it being decentralized to make it unsanctionable? No. Guns and bullets are decentralized, but murder is still illegal. Law enforcement agents can investigate crime committed using crypto just like they can investigate crime committed using any other instrument.