8 ms·

Tornado Cash verdict has chilling implications for industry

61 points by andrewfromx 2y ago

paulpauper 2y ago
As far as the US is concerned, TC is legal. It is illegal if used to facilitate a fraud or launder its proceeds.
- delabay 2y ago
  Well, for starters, the tornado cash contract is on the US OFAC sanction list...
  - cosmojg 2y ago
    Link: https://sanctionssearch.ofac.treas.gov/Details.aspx?id=39796 https://sanctionssearch.ofac.treas.gov/Details.aspx?id=39796 What is the actual legal interpretation of OFAC listing a website domain and a set of Ethereum addresses on the OFAC sanction list? Does this simply mean that it is illegal to transact with foreign entities associated with these identifiers? Or does it mean something more? Or nothing at all?
    - salawat 2y ago
      Anything on that list is disallowed as an actor in any transaction save for making a deposit in a regulated institution (thereby freezing the asset). Osama bin Laden may put money into the U.S. financial system, but it may not move any further after that point.
- fogof 2y ago
  I don't think this is right. From the Wikipedia page: > In August 2022, the U.S. Department of the Treasury blacklisted the service, making it illegal for US citizens, residents and companies to use.
crummy 2y ago
The comparisons brought up in the article (cars, baseball bats, even Ethereum) service legitimate purposes, in addition to their potential for crimes. What's the legitimate purpose for Tornado Cash?
- poopsmithe 2y ago
  I think you're invoking a liberarian argument where nobody is entitled to the fruits of your labor except for you. That means it's none of government's business to know how much money you have or who you transact with. Tornado Cash made this sort of ideal possible on Bitcoin.
  - mistrial9 2y ago
    probably meant to say "libertarian" .. and to put a finer point on it, the government with jurisdiction over trade does indeed get to know how much money is traded with, and with whom.. on the reporting decided on by regulation.. not a wholesale dragnet monitoring of every transaction and every account balance. Meanwhile, modern finance is such that financial products are unequal, especially over borders, so the right to trade money and the like over time is included in legal definitions of private property. .. something like that.. ?
  - readyman 2y ago
    >a liberarian argument where nobody is entitled to the fruits of your labor except for you There simply is no fruit which is the product of one's labor, whether it be one person or one enterprise. Any honest analysis must start here.
    - stirfish 2y ago
      I don't know what you mean.
      - readyman 2y ago
        We live in a society. All our knowledge and labor is dependent on prior knowledge and labor of our neighbors and those who came before us, also known as our society.
bidder33 2y ago
“i’m sorry that your warrantless surveillance regime was built on the assumption that people would always need intermediaries to transact” https://x.com/NeerajKA/status/1346836020927619077 https://x.com/NeerajKA/status/1346836020927619077
- talldayo 2y ago
  I'm sorry that your workaround was built on the assumption that the US doesn't care about unregulated assets. Because like damn, that is one hell of a risky bet to hedge your savings on.
  - deleted 2y ago
    [deleted]
  - wvlia5 2y ago
    It's more like a bet that the US will be powerless to regulate it, which is holding true for XMR.
    - illusive4080 2y ago
      Sadly I think they will if it ever becomes popular enough.
    - xtracto 2y ago
      LocalMonero just shot down. And it was a p2p XMR marketplace. Right now there's no sensible way to trade XMR to FIAT easily without your government knowing. If the US really squeezes those cryptos they will die promptly.
      - _l219 2y ago
        XMR -> other crypto -> fiat. Send your Monero around a few wallets and the government will know you have Monero but not the origin. There are probably alternatives to LocalMonero WIP
- boppo1 2y ago
tudorconstantin 2y ago
TL;DR: the Tornado Cash developer, Alexey Pertsev, was convicted by the Dutch authorities to +5 years in prison for money laundering for developing Tornado Cash (not for actually laundering any money). I wonder: will they go for the monero devs next? What about the creators of wallets that don’t require KYC before creating an address?
Animats 2y ago
In a related US case, the US indictment alleges that "The defendants and their co-conspirators created the core features of the Tornado Cash service, paid for critical infrastructure to operate the Tornado Cash service, promoted the Tornado Cash service, and made millions of dollars in profits from operating the Tornado Cash service."[1] More analysis of the US case. [1] https://www.justice.gov/usao-sdny/pr/tornado-cash-founders-charged-money-laundering-and-sanctions-violations https://www.justice.gov/usao-sdny/pr/tornado-cash-founders-c... [2] https://www.skadden.com/-/media/files/publications/2023/09/court-victory-for-treasury-and-indictment/courtvictoryfortreasuryandindictmentoftornadocashfoundershighlightsamlandsanctionsrisksfordeficrypto.pdf https://www.skadden.com/-/media/files/publications/2023/09/c...
mrtksn 2y ago
IMHO that kind of projects should simply go anonymous. You can’t really take on governments and then complain that they are fighting you back. It’s pretty clear that the gvts are following the money trail to take down people and organization they consider a security risk. The whole financial system and sanction system are built upon this, that’s why there’s KYC everywhere. I don’t think that it’s reasonable to expect to get away with building a machine that takes away this tool from the regulators and law enforcement. They will obviously hold you accountable for the instances that your code makes their system useless. In the case of Tornado Cash, you can't even claim that this is an unintended consequence. Therefore I don’t believe that there are any implications about writing open source code at all. Just don’t mess with the systems that run the society and take credit for it and not have the means to stay beyond the reach of those you are messing with - all at the same time. That’s hardly a new concept. Revolutionaries are never “the good guy” until the revolution succeeds.
- smeej 2y ago
  It is unbelievably hard to "go anonymous" when the entity trying to de-anonymize you is a nation state.
  - mrtksn 2y ago
    Being revolutionary is hard, its not an entitlement. It's not unusual in this endeavour to die in a ditch or your head paraded on tip of a spear. You are literally the enemy of the state, a terrorist, an illegal when you take on a state. You are not even "the hero of the people", at best you are the hero of a group of the people who share your deals and everyone else sees you as undesirable, especially the people who are the beneficiaries of the system you are trying to take down and they don't even have to be bad people. Also, just because you take on a powerful organisation doesn't even make you the righteous one. Awful lot of people depend on these organisations for stuff like following the money to catch other "revolutionaries" who blown up their metro stations for example. It's very likely to be vilified when you decapacitate the governments.
    - smeej 2y ago
aravindet 2y ago
Is there anything in judgement that limits this to cryptocurrency? I could see this precedent being used to shut down open source projects in end-to-end encryption, BitTorrent, etc. While I have no knowledge of Tornado Cash itself, I hope an organization like the EFF would help appeal this to mitigate the larger danger. I believe there are precedents that publishing source code is protected under the first amendment (code is writing). This is distinct from operating a service.
- deleted 2y ago
  [deleted]
- reaperman 2y ago
  I’m just glad this isn’t a US court ruling. USA has a strange habit of enforcing its laws overseas - see the Kim Dotcom debacle where US laws were used to prosecute someone who was not a US citizen and never set foot in the USA.
- FabHK 2y ago
  This, by the way, is another thing I dislike about crypto. The obvious need to regulate it could jeopardise the fragile consensus we currently have on private e2ee communication being allowed. In other words, the reckless behaviour of today's crypto operators could lead to a fresh round of the 1990's crypto wars (when "crypto" meant cryptography), but with a different (worse) outcome.
Stagnant 2y ago
There is hoping this verdict will be challenged and overturned. If they start applying the same liability standards to other type of software I could see many cybersecurity professionals catching heat.
cosmojg 2y ago
Does this ruling actually set enough legal precedent for someone to, for example, successfully press charges against Smith & Wesson for assisting a murder facilitated by a weapon they manufactured and distributed? Or are the legal implications of this ruling a bit more limited/complicated than that?
- incompatible 2y ago
  I'm not sure about Smith & Wesson specifically, but this seems similar: https://www.abc.net.au/news/2021-07-29/gun-maker-offers-33m-to-settle-suit-by-sandy-hook-families/100332512 https://www.abc.net.au/news/2021-07-29/gun-maker-offers-33m-... I'd guess it comes down to whether a somebody can claim that the intended uses of their product are legal, and that they aren't encouraging illegal uses in any way.
- imoverclocked 2y ago
  Another interesting stretch would be holding governments responsible for knowingly allowing illegal activity with their own currency; Especially if that currency is used outside of their borders.
- badlucklottery 2y ago
  From what I understand, they weren't being charged for created a "dangerous" technology but for actively running a money laundering operation that happened to use that technology. Some of the chat logs that were obtained seem particularly damning. So it's less like S&W legally selling guns that are later used in crimes and more like a low-level buyer in the Iron Pipeline (https://en.wikipedia.org/wiki/Iron_Pipeline https://en.wikipedia.org/wiki/Iron_Pipeline).
jcranmer 2y ago
I don't have a lot of sympathy here because the cryptocurrency industry is basically a financial industry that's trying to evade financial regulation. Acting all pikachu-shocked face that the government doesn't believe your arguments as to why you can evade what is perhaps historically the most closely-regulated industry speaks of naïvety. One of my other interests is decompilation, which is another field where there is a lot of wink-wink-nudge-nudge-this-totally-isn't-for-illegal-purposes activity. So I should probably have more sympathy here... but the reverse engineering field is protected in part by the Betamax substantial-noninfringing-uses precedent, which is harder to apply to cryptocurrency tumblers.
rgbrenner 2y ago
Except they weren't convicted of writing the Tornado Cash protocol. These guys operated a website to create the contracts, accounting for 90% of the contracts issued. Their chats have clear statements of them discussing billions of dollars worth of illegal money from North Korea, various crypto hacks, etc using the service; but they refused to implement any KYC controls for the website. The few controls they did put in place, they (again in chats) made sure they were inadequate to stop any stolen coins from using the service. That's bad enough... but they went one step further by creating a coin so they got paid for each Tornado Cash contract. They pulled in millions of dollars for themselves while operating a service that they knowingly facilitated illegal activity. If it wasn't for the website and the millions in earnings, they would have been ok. Tornado Cash -- the smart contract -- is still operating today. Only the website is gone.
- deckar01 2y ago
  It would be nice if articles would cite a source other than twitter commentary. The official verdict makes it clear this was about operating a laundering service not publishing a laundering tool. > The relayer acts as an intermediary and arranges the full withdrawal, including the payment of the fee. … the transaction track of the cryptocurrency in question stops at Tornado Cash. … > When these acts are carried out in respect of crime-derived Ether, it is in fact Tornado Cash that carries out the concealing or concealing money laundering act. Therefore, in the opinion of the court, Tornado Cash cannot be seen merely as a tool for the user. https://uitspraken.rechtspraak.nl/details?id=ECLI:NL:RBOBR:2024:2069 https://uitspraken.rechtspraak.nl/details?id=ECLI:NL:RBOBR:2...
FabHK 2y ago
This is a welcome development. Next, I suggest to prosecute these individuals, named in the Bitcoin Core source code, for their involvement in the crimes perpetrated through Bitcoin. vSeeds.emplace_back("seed.bitcoin.sipa.be."); // Pieter Wuille, only supports x1, x5, x9, and xd vSeeds.emplace_back("dnsseed.bluematt.me."); // Matt Corallo, only supports x9 vSeeds.emplace_back("dnsseed.bitcoin.dashjr.org."); // Luke Dashjr vSeeds.emplace_back("seed.bitcoinstats.com."); // Christian Decker, supports x1 - xf vSeeds.emplace_back("seed.bitcoin.jonasschnelli.ch."); // Jonas Schnelli, only supports x1, x5, x9, and xd vSeeds.emplace_back("seed.btc.petertodd.org."); // Peter Todd, only supports x1, x5, x9, and xd vSeeds.emplace_back("seed.bitcoin.sprovoost.nl."); // Sjors Provoost vSeeds.emplace_back("dnsseed.emzy.de."); // Stephan Oeste vSeeds.emplace_back("seed.bitcoin.wiz.biz."); // Jason Maurice

61 points by andrewfromx 2y ago

paulpauper 2y ago

As far as the US is concerned, TC is legal. It is illegal if used to facilitate a fraud or launder its proceeds.

delabay 2y ago
Well, for starters, the tornado cash contract is on the US OFAC sanction list...
- cosmojg 2y ago
  Link: https://sanctionssearch.ofac.treas.gov/Details.aspx?id=39796 https://sanctionssearch.ofac.treas.gov/Details.aspx?id=39796 What is the actual legal interpretation of OFAC listing a website domain and a set of Ethereum addresses on the OFAC sanction list? Does this simply mean that it is illegal to transact with foreign entities associated with these identifiers? Or does it mean something more? Or nothing at all?
  - salawat 2y ago
    Anything on that list is disallowed as an actor in any transaction save for making a deposit in a regulated institution (thereby freezing the asset). Osama bin Laden may put money into the U.S. financial system, but it may not move any further after that point.
fogof 2y ago
I don't think this is right. From the Wikipedia page: > In August 2022, the U.S. Department of the Treasury blacklisted the service, making it illegal for US citizens, residents and companies to use.

crummy 2y ago

The comparisons brought up in the article (cars, baseball bats, even Ethereum) service legitimate purposes, in addition to their potential for crimes. What's the legitimate purpose for Tornado Cash?

poopsmithe 2y ago
I think you're invoking a liberarian argument where nobody is entitled to the fruits of your labor except for you. That means it's none of government's business to know how much money you have or who you transact with. Tornado Cash made this sort of ideal possible on Bitcoin.
- mistrial9 2y ago
  probably meant to say "libertarian" .. and to put a finer point on it, the government with jurisdiction over trade does indeed get to know how much money is traded with, and with whom.. on the reporting decided on by regulation.. not a wholesale dragnet monitoring of every transaction and every account balance. Meanwhile, modern finance is such that financial products are unequal, especially over borders, so the right to trade money and the like over time is included in legal definitions of private property. .. something like that.. ?
- readyman 2y ago
  >a liberarian argument where nobody is entitled to the fruits of your labor except for you There simply is no fruit which is the product of one's labor, whether it be one person or one enterprise. Any honest analysis must start here.
  - stirfish 2y ago
    I don't know what you mean.
    - readyman 2y ago
      We live in a society. All our knowledge and labor is dependent on prior knowledge and labor of our neighbors and those who came before us, also known as our society.

bidder33 2y ago

“i’m sorry that your warrantless surveillance regime was built on the assumption that people would always need intermediaries to transact” https://x.com/NeerajKA/status/1346836020927619077 https://x.com/NeerajKA/status/1346836020927619077

talldayo 2y ago
I'm sorry that your workaround was built on the assumption that the US doesn't care about unregulated assets. Because like damn, that is one hell of a risky bet to hedge your savings on.
- deleted 2y ago
  [deleted]
- wvlia5 2y ago
  It's more like a bet that the US will be powerless to regulate it, which is holding true for XMR.
  - illusive4080 2y ago
    Sadly I think they will if it ever becomes popular enough.
  - xtracto 2y ago
    LocalMonero just shot down. And it was a p2p XMR marketplace. Right now there's no sensible way to trade XMR to FIAT easily without your government knowing. If the US really squeezes those cryptos they will die promptly.
    - _l219 2y ago
      XMR -> other crypto -> fiat. Send your Monero around a few wallets and the government will know you have Monero but not the origin. There are probably alternatives to LocalMonero WIP
boppo1 2y ago

tudorconstantin 2y ago

TL;DR: the Tornado Cash developer, Alexey Pertsev, was convicted by the Dutch authorities to +5 years in prison for money laundering for developing Tornado Cash (not for actually laundering any money). I wonder: will they go for the monero devs next? What about the creators of wallets that don’t require KYC before creating an address?

Animats 2y ago

In a related US case, the US indictment alleges that "The defendants and their co-conspirators created the core features of the Tornado Cash service, paid for critical infrastructure to operate the Tornado Cash service, promoted the Tornado Cash service, and made millions of dollars in profits from operating the Tornado Cash service."[1] More analysis of the US case. [1] https://www.justice.gov/usao-sdny/pr/tornado-cash-founders-charged-money-laundering-and-sanctions-violations https://www.justice.gov/usao-sdny/pr/tornado-cash-founders-c... [2] https://www.skadden.com/-/media/files/publications/2023/09/court-victory-for-treasury-and-indictment/courtvictoryfortreasuryandindictmentoftornadocashfoundershighlightsamlandsanctionsrisksfordeficrypto.pdf https://www.skadden.com/-/media/files/publications/2023/09/c...

mrtksn 2y ago

IMHO that kind of projects should simply go anonymous. You can’t really take on governments and then complain that they are fighting you back. It’s pretty clear that the gvts are following the money trail to take down people and organization they consider a security risk. The whole financial system and sanction system are built upon this, that’s why there’s KYC everywhere. I don’t think that it’s reasonable to expect to get away with building a machine that takes away this tool from the regulators and law enforcement. They will obviously hold you accountable for the instances that your code makes their system useless. In the case of Tornado Cash, you can't even claim that this is an unintended consequence. Therefore I don’t believe that there are any implications about writing open source code at all. Just don’t mess with the systems that run the society and take credit for it and not have the means to stay beyond the reach of those you are messing with - all at the same time. That’s hardly a new concept. Revolutionaries are never “the good guy” until the revolution succeeds.

smeej 2y ago
It is unbelievably hard to "go anonymous" when the entity trying to de-anonymize you is a nation state.
- mrtksn 2y ago
  Being revolutionary is hard, its not an entitlement. It's not unusual in this endeavour to die in a ditch or your head paraded on tip of a spear. You are literally the enemy of the state, a terrorist, an illegal when you take on a state. You are not even "the hero of the people", at best you are the hero of a group of the people who share your deals and everyone else sees you as undesirable, especially the people who are the beneficiaries of the system you are trying to take down and they don't even have to be bad people. Also, just because you take on a powerful organisation doesn't even make you the righteous one. Awful lot of people depend on these organisations for stuff like following the money to catch other "revolutionaries" who blown up their metro stations for example. It's very likely to be vilified when you decapacitate the governments.
  - smeej 2y ago

aravindet 2y ago

Is there anything in judgement that limits this to cryptocurrency? I could see this precedent being used to shut down open source projects in end-to-end encryption, BitTorrent, etc. While I have no knowledge of Tornado Cash itself, I hope an organization like the EFF would help appeal this to mitigate the larger danger. I believe there are precedents that publishing source code is protected under the first amendment (code is writing). This is distinct from operating a service.

deleted 2y ago
[deleted]
reaperman 2y ago
I’m just glad this isn’t a US court ruling. USA has a strange habit of enforcing its laws overseas - see the Kim Dotcom debacle where US laws were used to prosecute someone who was not a US citizen and never set foot in the USA.
FabHK 2y ago
This, by the way, is another thing I dislike about crypto. The obvious need to regulate it could jeopardise the fragile consensus we currently have on private e2ee communication being allowed. In other words, the reckless behaviour of today's crypto operators could lead to a fresh round of the 1990's crypto wars (when "crypto" meant cryptography), but with a different (worse) outcome.

Stagnant 2y ago

There is hoping this verdict will be challenged and overturned. If they start applying the same liability standards to other type of software I could see many cybersecurity professionals catching heat.

cosmojg 2y ago

Does this ruling actually set enough legal precedent for someone to, for example, successfully press charges against Smith & Wesson for assisting a murder facilitated by a weapon they manufactured and distributed? Or are the legal implications of this ruling a bit more limited/complicated than that?

incompatible 2y ago
I'm not sure about Smith & Wesson specifically, but this seems similar: https://www.abc.net.au/news/2021-07-29/gun-maker-offers-33m-to-settle-suit-by-sandy-hook-families/100332512 https://www.abc.net.au/news/2021-07-29/gun-maker-offers-33m-... I'd guess it comes down to whether a somebody can claim that the intended uses of their product are legal, and that they aren't encouraging illegal uses in any way.
imoverclocked 2y ago
Another interesting stretch would be holding governments responsible for knowingly allowing illegal activity with their own currency; Especially if that currency is used outside of their borders.
badlucklottery 2y ago
From what I understand, they weren't being charged for created a "dangerous" technology but for actively running a money laundering operation that happened to use that technology. Some of the chat logs that were obtained seem particularly damning. So it's less like S&W legally selling guns that are later used in crimes and more like a low-level buyer in the Iron Pipeline (https://en.wikipedia.org/wiki/Iron_Pipeline https://en.wikipedia.org/wiki/Iron_Pipeline).

jcranmer 2y ago

I don't have a lot of sympathy here because the cryptocurrency industry is basically a financial industry that's trying to evade financial regulation. Acting all pikachu-shocked face that the government doesn't believe your arguments as to why you can evade what is perhaps historically the most closely-regulated industry speaks of naïvety. One of my other interests is decompilation, which is another field where there is a lot of wink-wink-nudge-nudge-this-totally-isn't-for-illegal-purposes activity. So I should probably have more sympathy here... but the reverse engineering field is protected in part by the Betamax substantial-noninfringing-uses precedent, which is harder to apply to cryptocurrency tumblers.

rgbrenner 2y ago

Except they weren't convicted of writing the Tornado Cash protocol. These guys operated a website to create the contracts, accounting for 90% of the contracts issued. Their chats have clear statements of them discussing billions of dollars worth of illegal money from North Korea, various crypto hacks, etc using the service; but they refused to implement any KYC controls for the website. The few controls they did put in place, they (again in chats) made sure they were inadequate to stop any stolen coins from using the service. That's bad enough... but they went one step further by creating a coin so they got paid for each Tornado Cash contract. They pulled in millions of dollars for themselves while operating a service that they knowingly facilitated illegal activity. If it wasn't for the website and the millions in earnings, they would have been ok. Tornado Cash -- the smart contract -- is still operating today. Only the website is gone.

deckar01 2y ago
It would be nice if articles would cite a source other than twitter commentary. The official verdict makes it clear this was about operating a laundering service not publishing a laundering tool. > The relayer acts as an intermediary and arranges the full withdrawal, including the payment of the fee. … the transaction track of the cryptocurrency in question stops at Tornado Cash. … > When these acts are carried out in respect of crime-derived Ether, it is in fact Tornado Cash that carries out the concealing or concealing money laundering act. Therefore, in the opinion of the court, Tornado Cash cannot be seen merely as a tool for the user. https://uitspraken.rechtspraak.nl/details?id=ECLI:NL:RBOBR:2024:2069 https://uitspraken.rechtspraak.nl/details?id=ECLI:NL:RBOBR:2...

FabHK 2y ago

This is a welcome development. Next, I suggest to prosecute these individuals, named in the Bitcoin Core source code, for their involvement in the crimes perpetrated through Bitcoin. vSeeds.emplace_back("seed.bitcoin.sipa.be."); // Pieter Wuille, only supports x1, x5, x9, and xd vSeeds.emplace_back("dnsseed.bluematt.me."); // Matt Corallo, only supports x9 vSeeds.emplace_back("dnsseed.bitcoin.dashjr.org."); // Luke Dashjr vSeeds.emplace_back("seed.bitcoinstats.com."); // Christian Decker, supports x1 - xf vSeeds.emplace_back("seed.bitcoin.jonasschnelli.ch."); // Jonas Schnelli, only supports x1, x5, x9, and xd vSeeds.emplace_back("seed.btc.petertodd.org."); // Peter Todd, only supports x1, x5, x9, and xd vSeeds.emplace_back("seed.bitcoin.sprovoost.nl."); // Sjors Provoost vSeeds.emplace_back("dnsseed.emzy.de."); // Stephan Oeste vSeeds.emplace_back("seed.bitcoin.wiz.biz."); // Jason Maurice