Ethereum Entities Mostly Abided by Tornado Cash Sanctions, NY Federal Reserve Report Finds
A recent report from the Federal Reserve Bank of New York revealed that Ethereum block builders have been largely compliant with sanctions imposed on Tornado Cash, a popular crypto mixer. Despite some ongoing activity with the mixer, block validators in close proximity to transactions have shown a willingness to cooperate, with the report highlighting that sanctions may not necessarily impact non-U.S. individuals.
The New York Fed released a paper examining the repercussions of the Office of Foreign Asset Control’s (OFAC) blacklisting of Tornado Cash on its usage. Crypto mixers like Tornado Cash are designed to enhance privacy by concealing transaction origins and destinations. However, law enforcement agencies such as OFAC have targeted several mixers due to their association with illicit actors, including those linked to North Korea. In August 2022, the U.S. Treasury Department prohibited all U.S. persons from interacting with Tornado Cash.
Roman Storm, a developer of Tornado Cash, is currently embroiled in a legal battle over the nature of the project, with debates revolving around whether it functions as a software tool or a service. Another developer, Alexey Pertsev, faced similar charges in the Netherlands earlier this year.
The report indicated that while block validators in close proximity to transactions are more inclined to cooperate, nodes further away from the transaction’s origin are less likely to do so. The study referenced a court ruling in August 2023 that favored OFAC, leading to a noticeable shift in behavior among large builders towards cooperation, underscoring the significance of regulatory clarity in determining cooperation levels.
The report also clarified that the sanctions might not be applicable to non-U.S. persons outside the United States, implying that non-cooperation does not necessarily equate to a violation of sanctions by individuals using Tornado Cash. Despite ongoing transactions, the total value and volume of Tornado Cash transactions decreased significantly during the observed period, with a single entity accounting for a majority of the blocks containing funds routed through the mixer.
The paper concluded by highlighting that while Tornado Cash transactions persist, the resilience of censorship resistance appears to be less robust than transaction volumes suggest. The analysis sheds light on the evolving landscape of crypto mixers and the intricate dynamics between regulatory frameworks and operational practices in the digital asset space.
