Decentralization meant sanctions couldn’t ‘pull the plug’ on Tornado Cash: Chainalysis

Sanctions aimed at the decentralized crypto mixer Tornado Cash have failed to eliminate its use, although it has crippled the service, a blockchain analytics company has shown.

On August 8, the Office of Foreign Assets Control (OFAC) announced sanctions against crypto mixers for their role in money laundering.

In a report published on January 9, Chainalysis said the sanctions had some impact, causing total inflows to mixers to drop by 68% in the 30 days after the sanctions were imposed.

However, the company also emphasized that since Tornado Cash is a decentralized platform based on smart contracts, “no person or organization can easily ‘pull the plug’ on Tornado Cash as they can with centralized services.”

Chainalysis gives the example of the Hydra darknet market, which is different, seeing cryptocurrency inflows drop to zero after German police seized its servers as a result of sanctions.

Chainalysis explained that the sanctions imposed on Tornado Cash saw “the front website taken down, smart contracts can run indefinitely, meaning anyone can still use the technology at any time,” adding:

“This suggests that sanctions against decentralized services act more as a tool to discourage the use of services than to eliminate them.”

OFAC came down heavily on Tornado Cash in August 2022 due to concerns that individuals and groups allegedly used the mixer to launder billions of crypto since 2019 including $455 million stolen by the North Korea-linked Lazarus Group.

The agency then amended the sanctions in November as it further undermined the platform for: “enabling malicious cyber activities, which ultimately support the DPRK. [weapons of mass destruction] program.”

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In its latest report, Chainalsis research shows that the illegal use of Tornado Cash is mainly related to hacks and crypto scams, with an average of 34% of all inflows resulting from it.

While the sanctions did not stop mixers, they effectively deterred people from using the platform, with total inflows dropping by 68% in the following month.

Specific numbers were not provided, but the chart shows that daily inflows were close to $25 million per day in the 30 days before the sanctions, and then dropped to $5 million per day.

before and after Inflows to sanctioned plaforms: Chainalysis

“The incentive seems to be strong, because the inflow decreased by 68% within 30 days after being appointed. It is very important here because Tornado Cash is a mixer, and the mixer becomes less effective for money laundering, less funds are received overall,” said the report.

related: DeFi security losses grow 47.4% in 2022 to $3.64B: Report

This week, a separate report from the blockchain security company SlowMist also gave some indication of the type of money flowing through Tornado Cash in 2022. According to the company’s research, 1,233,129 Ether (ETH) worth $1.62 billion were stored on the platform last year. with 1,283,186 ETH withdrawn ($1.7 billion).