Home Crypto News News Last Two Tornado Co-Founders Arrested — War on Smart Contracts Continues

Last Two Tornado Co-Founders Arrested — War on Smart Contracts Continues

Teuta Franjkovic
Last Updated August 29, 2023 8:09 AM
Key Takeaways
  • US  authorities acted against Tornado Cash’s co-founders on Wednesday.
  • Semenov and Storm, were arrested for alleged money laundering conspiracy.
  • Tornado Cash was accused of laundering billions since its 2019 launch.
  • It also faced penalties in August 2022.

Wednesday, August 23, last two co-founders of Tornado Cash, a decentralized cryptocurrency mixer that, like coinjoin for Bitcoin, increases the privacy of Ethereum transactions, have been arrested .

Roman Storm and Roman Semenov are going to be facing money laundering allegations and sanctions violations by US authorities, following the arrest of Alexey Pertsev, another co-founder, which occurred last year in the Netherlands.

Authorities to Block Coinjoin Transactions on BTC?

Some believe  coinjoin on Bitcoin will also be restricted after Tornado Cash issue conclusion as it has the potential to cover the trails of hackers and crooks.

Pertsev was already detained in the Netherlands a year ago and he is currently awaiting a trial on allegations that are similar to those brought against his partners.

Tornado Cash mixing service allows users to lose track of their ETH transactions and works with compatible EVM blockchains like Ethereum, Arbitrum, Optimism, Polygon Avalanche, and Binance Smart Chain, which makes it a perfect solution for people looking for the highest level of anonymity.

It operates similarly to Bitcoin transactions that use coinjoin, which allows one to combine their BTC with those of other users.

Tornado cash co-founders arrested
Credit: tornadocash.eth

US Treasury Department’s Office of Foreign Assets Control sanctioned  the Tornado Cash mixer last year due to accusations that the North Korean based hacker organization Lazarus may have been involved and used it to launder hundreds of millions of dollars.

Prosecutors don’t share the defendants’ defense that the mixer trivially reflects open-source software and that what they sought to create was only a tool dedicated to privacy.

Tornado Cash and its operators “knowingly facilitated” money laundering, according  to US Attorney Damien Williams, and knew they were assisting hackers and cybercriminals in concealing illegal operations results.

According to Williams, the group was specifically aware that hackers were using Tornado Cash to clean up after themselves in attacks on the Kucoin  and Bitmart  exchanges, as well as Axie Infinity’s Ronin Bridge .

Tornado Cash Founders Got 2.6M Worth Stablecoins

The indictment claims  that Storm and Semenov made false claims about their lack of involvement with the protocol’s management and operation by admitting that they had not implemented access solutions via KYC or AML as required by US law.

The claim that each of the three founders received 2.6 million stablecoins from the protocol to make up for the first fines imposed on them weighs even more heavily on the fate of the trio.

Storm has already been detained by the Justice Department and eight Ethereum addresses purportedly associated to Semenov have been blacklisted by OFAC.

Tornado Cash founders arrests sparked a highly emotional discussion over the privacy of cryptocurrency transactions involving open source software.

Arrests also raised possibility that coinjoin-related businesses on Bitcoin will be next US prosecutors target.

A new “legal case” emerged as a result of the detentions of Semenov, Storm, and Pertsey, which may be detrimental to the future of software engineers who, up until this point, never had to worry about being charged with offenses relating to open-source code.

Web3 Privacy Relevance

By mixing several BTC payments from different spenders into a single transaction with coinjoin, Bitcoin transactions can be blended in a way that is very similar to Tornado Cash, making it quite impossible to ascertain who paid which receiver.

Web3 players now place such a high value on privacy that they don’t mind when technology is used occasionally for illegal activities.

However, money laundering is still widely practiced even with conventional currency. Despite that, authorities do not move to stop the practice at the source and instead choose to go after those responsible for it.

Regardless, between late 2022 and early 2023, volume of transactions on coinjoin  increased to a point where it might be compared to the volume transferred on tornado cash.

Either US government’s concerns over potential connections between the protocol and organized crime rings committed to money laundering, and proponents of decentralized software who fear for their freedom at the source are growing dramatically.

Tornado Cash arrests
Credit: Glassnode