US sanctions limiting use of privacy software, crypto firms

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Earlier this month, the US Treasury Department sanctioned the banning of Tornado Cash, a crypto privacy tool that mixes funds from different users to hide the original source of crypto funds. The authority accused the mixing company of helping bad actors launder more than $7 billion in digital assets since its launch in 2019.

As cryptocurrency has gained momentum all over the world, it has also raised some issues such as money laundering and bad actors using them due to their anonymous nature. Likewise, space has alerted and involved government authorities to prevent illegal money transfers.

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As a result, law enforcement has imposed penalties on privacy tools that also disrupt the privacy of other users.

After authorities restricted mixing company Tornado a few weeks ago, criticism surfaced from crypto-focused firms, with at least one lawmaker expressing support for the mixing company. The lawmaker insisted that these limits can harm the privacy of US users, since local users also use privacy tools to protect them online.

Crypto mixing services circulate a user’s crypto funds from multiple crypto platforms and other users’ asset pool to hide transaction details and users involved.

It wasn’t the first mixing company charged by US law enforcement, as the authority previously implicated sanctions against North Korean mixing company Blender.io in May. Officials said they found the company involved in aiding North Korean hacker group Lazarus, which scored a $600 million heist targeting the Ronin Bridge network in March.

The price of Bitcoin has fallen below the $21,000 mark. | BTCUSD Price Chart from TradingView.com

Sanctions against Tornado Cash have also disrupted national security

More and more people are turning to internet security tools. For many, Tor and VPNs are go-to privacy tools, but the crypto community has different tools that ultimately fulfill the same mission: providing privacy.

According to charges from the US Treasury’s Office of Foreign Assets Control, Tornado Cash opened a way for hackers to launder stolen funds of over $96 million. According to the official’s statement, these funds belonged to the August Nomad crypto heist and the Harmony blockchain heist that occurred in June.

Citing the penalties imposed, a non-profit crypto advocacy platform, Coin Center, argued that law enforcement had exceeded their legal authority, paving the way for the violation of “constitutional rights to a due process and freedom of expression”.

Congressman Tom Emmer, who received $50,000 in contributions from the Blockchain Association this year, this week asked Treasury Secretary Janet Yellen in a memo to release a rationale for Tornado Cash. He further added that the sanctions disrupted national security and impacted “the right to privacy of every American citizen.”

Another major crypto project, Tether, also expressed support for Tornado and refused to freeze Tornado accounts on its network, saying it intended to keep them.

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On the other hand, a Treasury official said the agency aims to disrupt criminal behavior only and will use its sanctioning power to prevent the financial system from illicit operations such as money laundering and computer theft.

Statements in support of Tornado Cash emerged after Dutch authorities arrested the company’s developer in August; after a few days, the United States imposed sanctions accusing him of facilitating money laundering.

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