New York Fed has said the effect of sanctions against Tornado Cash was ambiguous

Analysts have concluded that the service remains a viable privacy tool from a user’s perspective

08.08.2024 - 14:45

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What’s new? A new New York Federal Reserve study has found that sanctions against the Tornado Cash crypto mixer have had a mixed effect. The Office of Foreign Assets Control (OFAC) within the US Department of the Treasury blocked Tornado Cash in August 2022, one of the first times the country’s authorities have imposed restrictions against a non-custodial smart contract.

Report

What else is known? According to the New York Fed, the volume and number of Tornado Cash transactions dropped sharply after the sanctions were imposed. The number of users, which researchers measured by the number of unique addresses, also dropped significantly in the weeks after the service was blocked.

However, despite the drop in usage, anonymity pools, which determine how anonymous transactions can become when using a mixer, remained large.

Despite the sharp decline in the flow of funds to and from Tornado Cash accounts, researchers noted an increase in total deposits from pre-sanctions levels in nearly all but the largest pools.

“Tornado Cash remains viable as a privacy tool, particularly in the view of users,” the report says.

The study also found that most validators complied with sanctions and censored Tornado Cash transactions, but two of them continued to actively process service-related transactions.

Validators who refused to cooperate apparently had no monetary incentive to do so. The report said that blocks containing Tornado Cash transactions tended to receive lower rewards, suggesting that validators were “motivated by philosophical reasons.”

Experts at the crypto analytics firm Chainalysis reported back in January last year that sanctions had failed to completely stop the use of Tornado Cash. Moreover, this year, according to Flipside Crypto, the volume of Tornado Cash deposits has already doubled the result for the whole of last year.

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