Caught Up in the DeFi Coding Whirlwind

Do repost and rate:

Welcome to Bloomberg Crypto, our twice-weekly look at Bitcoin, blockchain and more. If someone forwarded this to you, sign up here. In today’s edition,  revisits mixers, sanctions and what’s a crime or not: 

Tornado Cash is caught in a DeFi whirlwind

The news that a suspected developer for cryptocurrency obfuscator service Tornado Cash was arrested in Amsterdam last week triggered outrage across the cryptosphere, with opponents to the arrest arguing that a single person cannot be held responsible for crimes carried out using their code. 

In reality, it’s not the first time authorities have made a move like this. But because of how crypto has changed in recent years, it raises some potentially thorny issues.    

In case you missed the furor, the arrest came after popular crypto privacy tool Tornado was hit with sanctions by the US Treasury Department on Aug. 8 over its alleged facilitation of more than $7 billion in money laundering, including some $450 million by North Korean hackers.

Tornado, which mixes your digital tokens with those of other people to obscure transaction histories that otherwise would be fully visible on the Ethereum blockchain, has become infamous for its use by criminals to hide their loot in several of this year’s biggest crypto hacks. Its proponents say it’s a crucial tool for achieving true financial privacy, a core objective of many crypto diehards. 

Others who ran privacy mixers have found themselves on the wrong side of the law in the past. The US assessed a $60 million penalty against Larry Dean Harmon, the founder and operator of Bitcoin mixing tools Coin Ninja and Helix in 2020. European authorities shut down a different Bitcoin mixer in 2019.       

The Tornado Cash website.
Photographer: Luke MacGregor/Bloomberg

What sets the Tornado legal saga apart, though, is that the software uses open-source code, like most other decentralized-finance protocols. That makes it difficult to identify any one individual responsible for how it works, since different developers can help shape it. DeFi was still in its infancy back when the US government moved against Harmon. 

It also raises the question of whether it’s considered a crime to develop code that is then used for illegal purposes, and more specifically, whether how the code is written could reveal the developer’s — or developers’ — intent to that effect. 

The specific charges against the arrested Tornado developer have yet to be made public. But while the freedom to create and distribute open-source code is protected in many jurisdictions, Dutch authorities said they suspect the persons behind Tornado made “large-scale profits” from the criminal transactions conducted on the platform.

In essence, Tornado’s own code could be the key to determining if this really is an attack on open-source development — or the same old story as the banned mixers that came before it.

Charting it out

Crypto Miners ETF Is Deep in the Red

Fund has lost 50% since its inception in March

Source: Bloomberg

Hearing them out

“It’s kind of hard to make that decision, because we’ve never been in touch with the investigators. They’ve never charged us with anything.”
Co-founder of Terraform Labs
The co-inventor of Terra was asked if he plans on returning to Korea from Singapore, where he has been staying, as South Korean prosecutors probe into allegations of illegal activity behind Terra’s collapse.

What we’re reading (and writing)

Thank you for reading. We welcome all feedback at  [email protected].

Like getting your news by audio? Tune in to our new Bloomberg Crypto daily podcast on Apple Podcasts, Spotify, or the iHeartRadio app, or listen on the web

— With assistance by David Pan, Vildana Hajric, Yueqi Yang, and Anne Cronin

Regulation and Society adoption

Ждем новостей

Нет новых страниц

Следующая новость