Money laundering is one of the most often mentioned complaints about cryptocurrency by politicians and policymakers, and platforms like Tornado Cash are fanning the flames.
While cash remains the preferred currency for money laundering, cryptocurrencies have earned a negative reputation among officials in recent years.
In recent weeks, a number of high-profile crypto heists have highlighted the tools of the trade that hackers use to hide their tracks. One of their favorites is the Tornado Cash DeFi mixing service, which leaves a cold trail for crypto transactions, illicit or otherwise.
According to reports, the growing popularity of these mixing services is fueling money-laundering worries, despite the fact that global regulators have not classed them as illegal.
Crypto mixers are still permitted.
Crypto mixers have grown in popularity when centralized exchanges, under pressure from governments, began demanding massive amounts of KYC (know-your-customer) information from their users.
Tornado Cash operates by allowing users to deposit ERC-20 tokens into its smart contract, coupled with a hash of a transaction-specific note. After a period of time to further obscure the transaction, the user sends proof of a valid key to the contract, allowing them to withdraw the cash. Using zero-knowledge proofs, it effectively breaks the link between the source and destination addresses.
Despite being a popular alternative for hackers and criminals to launder money, these services are not illegal, according to crypto experts.
It went on to say that in December, hackers utilized Tornado Cash to launder $196 million in stolen cryptocurrency from the Bitmart exchange. According to blockchain monitoring firm AnChain, Tornado Cash has processed more than $10 billion in cryptocurrency transactions in the last year. AnChain’s CEO and founder, Victor Fang, stated:
“Privacy is not illegal, but criminals are looking for privacy solutions.” This is the tip of the iceberg, the beginning of the future we will witness.”
The infant and the bathwater
The issue is that governments and lawmakers blame cryptocurrency itself for money laundering, rather than the small number of criminals who use mixers to circumvent it.
Each year, around 2-5 percent of the $2 trillion in global growth is laundered in fiat currencies, according to the United Nations. According to a recent Chainalysis research, cryptocurrencies are used to launder approximately $8.6 billion per year, which is a little fraction of the $40-$100 billion in cash equivalents.
Cash is still king when it comes to money laundering, but the anti-crypto brigade will find a way to present a different story, advocating broad-sweeping crackdowns that would wind up tossing the baby out with the bathwater.