The sanctions on cryptocurrency mixer Tornado Cash has left a vacuum for illicit fund mixing services, but more time is needed before we’ll know the full impact, according to Chainalysis’ chief scientist.
During a demo of Chainalysis’ recently launched blockchain analysis platform Storyline, Cointelegraph asked Chainalysis chief scientist Jacon Illum and country manager for Australia and New Zealand Todd Lenfield about the impact of the Tornado Cash ban.
Illum said whilst there is still some usage of the mixer, more time was needed to “see what’s happening” and how the ”world responds to that designation,” adding that people are trying to figure out what to do now the crypto mixer is effectively gone:
“People are getting more cautious in the space and are not sure how to interact with Tornado Cash, we’ve seen deposits into services providing similar activity go down at least temporarily, because people are measuring like ‘what does this mean for me?’”
But, where others see obstacles, some are clearly seeing opportunity, Illum noted a crop of what he calls “junior mixers” have popped up looking to cash in on the void that Tornado Cash left.
An August report by blockchain security firm SlowMist stated 74.6% of stolen funds on the Ethereum (ETH) network were transferred to Tornado Cash in the first half of 2022, a sum of over 300,000 ETH, around $380 million.
“If the liquidity isn’t there, you effectively dry up a lot of [a mixers] capability,” Lenfield added.
“The hunting for places where there is liquidity, when it’s highly visible after things like the OFAC sanctioning of Tornado Cash, I think makes a very interesting space to keep an eye on.”
Tornado cash was sanctioned by the United States Treasury Department on Aug. 8 meaning criminal or civil penalties could be brought against U.S. citizens or entities who interact with the mixer. Over 40 cryptocurrency addresses purportedly connected to Tornado Cash were added to the Specially Designated Nationals list of the Office of Foreign Asset Control (OFAC).
Asked about the level of sophistication that law enforcement agencies had in dealing with crypto related crime, Illum mentioned one of the biggest gaps in law enforcement at the moment is blockchain-related training.
“As [blockchain] gains adoption, there’s more people that are getting exposure to crypto, which also means that there are more agents or law enforcement personnel that need to have exposure to crypto as well.”
Lenfield noted that authorities are starting to build capabilities around cryptocurrencies, citing the Australian Federal Police’s (AFP) recent establishment of a cryptocurrency unit focused on monitoring crypto transactions.
“It is active in their minds, they are setting goals, and they’re working through that…but as in any aspect, there’s that learning curve to get them there, but there is 100% visibility and development in this space by those agencies.”
Earlier in September, Chainalysis Crypto Incident Response team helped law enforcement recover $30 million in crypto stolen in the Ronin Bridge hack by the North Korean linked Lazarus Group who used Tornado Cash to launder stolen assets.
- ^ impact of the Tornado Cash ban (cointelegraph.com)
- ^ crypto mixer (cointelegraph.com)
- ^ report (www.slowmist.com)
- ^ ETH (cointelegraph.com)
- ^ Data from Chainalysis (cointelegraph.com)
- ^ Tornado cash was sanctioned (cointelegraph.com)
- ^ Tornado Cash is the latest chapter in the war against encryption (cointelegraph.com)
- ^ establishment of a cryptocurrency unit (cointelegraph.com)
- ^ recover $30 million in crypto (cointelegraph.com)
This article was first published on Cointelegraph.com