Tornado Cash: How Sanctions Struggled to Cut Its Usage

Sanctions that Shook but Didn’t Break

When the Office of Foreign Assets Control (OFAC) dropped the sanctions bomb on Tornado Cash, many anticipated a cataclysmic shutdown akin to a dramatic movie plot. Yet, it turned out to be more like a soap opera: some twists and turns, but the show went on. According to a January report from Chainalysis, while the sanctions indeed dampened usage, they didn’t entirely halt the mixer’s operations. In fact, the crypto mixer saw an impressive 68% drop in inflows in the thirty days post-sanction—but it’s worth noting that its wheels keep turning.

Tornado Cash vs. Hydra: A Tale of Two Services

Chainalysis brilliantly contrasted Tornado Cash with the notorious darknet marketplace Hydra, which went from a bustling bazaar of illicit activities to zero inflows overnight after being raided by German authorities. The reason? Hydra was centralized, making it a sitting duck. Tornado Cash, being decentralized and smart-contract-based, is more like an aggressive cockroach: just when you think you’ve squished it, it scuttles away in a new direction.

The Forever Running Code

Even with its front-end website taken down, the smart contracts that power Tornado Cash keep chugging along indefinitely. This means users can still interact with it, proving that cutting off access isn’t as simple as flipping a switch. Chainalysis put it succinctly, stating, “No person or organization can ‘pull the plug’ as easily on Tornado Cash as they could with a centralized service.” What a party trick!

Statistics That Speak Volumes

Hard data from the Chainalysis report reveals that while the storm of sanctions hit Tornado Cash hard, it didn’t completely wash it away. Daily inflows shrank from a staggering $25 million pre-sanction to under $5 million. Yikes! For a mixer that thrives on volume, that’s akin to a high-end restaurant being told that only two tables are allowed to eat. Talk about needing a menu shake-up!

The Financial Footprint of Tornado Cash

A closer look at the numbers reveals that in 2022 alone, a whopping 1,233,129 Ether (ETH) valued at $1.62 billion was funneled through Tornado Cash. In contrast, 1,283,186 ETH worth $1.7 billion was withdrawn. Those cash flows suggest that users are still finding ways to engage with the service, even amidst the sanctioned turmoil.

The Future of Decentralized Services

Ultimately, the sanctions against Tornado Cash exemplify the ongoing tug-of-war between regulatory bodies and decentralized platforms. While authorities hope to dissuade users from utilizing such services, the reality is that decentralization acts like a super resilient weed: it’s tough to eradicate completely. As regulators continue to grapple with this brave new world of crypto, it seems clear that a new strategy is needed—one that may just have to involve more than plain old sanctions.