The US Department of the Treasury's Office of Foreign Assets Control last month sanctioned a technology called Tornado Cash, on the grounds that it "has been used to launder more than $7 billion (over 253 billion baht) worth of virtual currency since its creation in 2019". Such enforcement measures are nothing new. But what makes this case unique is that Tornado Cash is a piece of open-source software.
Essentially an automated tool, Tornado Cash mixes digital assets and redistributes them to preserve privacy. While we don't know everything about Tornado Cash or why it was created, we do know that large sums of digital assets linked to illicit activity have moved through the protocol since it was launched, including millions stolen by North Korean hackers. Any American who uses the service now faces up to 20 years in prison.
Some believe that such sanctions are necessary to prevent money laundering, while others see them as a sign of government overreach. But whatever one's perspective, it's worth asking why there was a need for a protocol like Tornado Cash in the first place. The short answer is that our financial system is failing to balance privacy and security. Fortunately, this is a challenge that web3 (blockchain) technologies could help to resolve.
