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Blog post: OFAC vs. Open source software
The US Treasury’s Office of Foreign Assets Control (OFAC) controls and enforces economic sanctions against countries and groups of individuals, such as terrorists, hackers and drug traffickers, but last month, they announced the sanctioning of Tornado Cash along with 45 Ethereum addresses to the Specially Designated Nationals (SDN) List of sanctioned persons. Just days after the announcement, Dutch police released a statement claiming to have arrested one of the core developers behind the project, based on suspicion of facilitating “money laundering through the mixing of cryptocurrencies through the decentralized Ethereum mixing service Tornado Cash”.
What’s peculiar about this case is that Tornado Cash is an open source software project, not a person, group nor company. Tornado Cash provides privacy protection for people transacting on the Ethereum blockchain. The solution refers to several open source software libraries that have been developed over many years by a diverse group of contributors. These contributors have published and made Tornado Cash available for general use as a collection of smart contracts on the Ethereum blockchain.
Now how does Tornado Cash work?
Tornado Cash is an application made up of a group of smart contracts running on the Ethereum blockchain that enable users to send & receive transactions privately. there are two types of operations any user can perform, “deposit” or “withdraw.” Together, these operations allow a user to deposit tokens from one address and later withdraw those same tokens to a different address. Although these deposit and withdrawal actions are recorded publicly on Ethereum’s ledger, there is no longer a way to publicly link the deposit and withdrawal addresses, thus enabling the user to withdraw their own funds without fear of exposing their entire financial history to anyone.
Its important to note that
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Even though user deposits and withdrawals are public, no one is able to identify which deposits correspond to which withdrawals.
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Smart contract code automates the whole operation so there is no intermediary or third party involved in execution.
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Users are only able to withdraw the tokens they deposit
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No one controls the operation nor will have the ability to change the operation of the Tornado Cash smart contracts.
The sanction announcement caused quite a stir & resurfaced a lot of concerns over online privacy & the right to transact privately 👇
For a deeper dive into this case, I recommend checking out this in-depth analysis from Coincenter
And listen to this discussion on the Bankless podcast
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Artist highlight: Tyler Hobbs