Tornado Cash and the US Treasury Department's OFAC Designation

Tornado Cash and the US Treasury Department's OFAC Designation

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Tornado cash is a popular copyright mixer that was recently designated by the US Treasury Department’s Office of Foreign Assets Control (OFAC). The designation has raised controversy because, in the view of many, it undermines copyright users’ privacy by linking their deposit and withdrawal addresses. The resulting link could be used to identify the owner of the deposited funds, and even to trace the source of subsequent transactions.

The process works as follows: When a user deposits tokens into a pool, they generate a secret that matches the hash of their deposit. Then, they prompt the pool smart contract to process their deposit. The pool then adds this resulting encoded note to its list of deposits. When the user wants to withdraw, they use a Relayer program to facilitate the process. Relayers don’t have custody over the user’s withdrawn tokens, and they also earn a fee for their service.

To withdraw, a user first has to have enough ETH in their wallet for the Ethereum network to pay the pool smart contract to complete its operations. This is done by sending the pool a transaction that links their withdrawal address to the deposit account that they want to withdraw from. The user can then select a relayer from the public Relayer Registry, another sanctioned Tornado Cash smart contract. The relayer then processes the withdrawal and earns a fee for their services.

In addition to the aforementioned steps, some Tornado cash官网 pools have additional features that enhance their users’ privacy. For example, some have zero-knowledge proof processors that allow users to retrieve their deposits without giving up their keys or passwords.

The government’s rationale for listing the Tornado Cash protocol is that it is used to facilitate “severe violations of US sanctions law.” But critics argue that this argument is flawed in several ways. First, it ignores the fact that the designation applies to the code itself rather than to actual people – and that OFAC does not have the authority to sanction a piece of software or technology, much less one designed to protect user privacy.

As a result of the OFAC designation, US-based virtual asset services – including copyright exchanges and NFT marketplaces – must now ensure that they do not support Tornado Cash or any other pool with a similar function. They must also comply with OFAC regulations that require them to report all transactions involving designated entities.

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