September 24, 2022

Sanctions on cryptocurrency mixer Tornado Cash have left a vacuum for illegal fund mixing services, but more time is needed before we know the full impact, says Chainalysis’ chief scientist.

During a demo of Chainalysis’ recently launched blockchain analytics platform Storyline, Cointelegraph asked Chainalysis Chief Scientist Jacon Illum and Australia and New Zealand Country Manager Todd Lenfield about the impact of the Tornado Cash ban.

Illum said that while there is still some use of the mixer, it took more time to “see what’s going on” and how “the world reacts to that tag,” adding that as people try to figure out what to do now, the crypto mixer is effective gone:

“People are increasingly wary of the space and not sure how to interact with Tornado Cash, we’ve seen deposits in services that provide similar activities go down at least temporarily as people measure like ‘what does this mean for me?’ ”

But where others see obstacles, some clearly see opportunity, Illum noted that a number of what he calls “junior mixers” have emerged looking to cash in on the void left by Tornado Cash.

August report by blockchain security firm SlowMist stated that 74.6% of stolen funds on the Ethereum (ETH) network were transferred to Tornado Cash in the first half of 2022, a sum of over 300,000 ETH, about $380 million.

Data from Chainalysis showed that the 30-day moving average of the total daily value received by crypto mixers hit a new all-time high of $51.8 million in April.

“If there’s no liquidity, you’re actually draining a lot [a mixers] capabilities,” Lenfield added.

“Hunting for places where there is liquidity, when that’s very visible after things like OFAC sanctioning Tornado Cash, I think is a very interesting space to keep an eye on.”

Tornado Cash was sanctioned by the United States Treasury Department on August 8, meaning that criminal or civil penalties could be imposed against US citizens or entities that interact with the mixer. More than 40 cryptocurrency addresses allegedly linked to Tornado Cash have been added to the Office of Foreign Assets Control’s (OFAC) list of Specially Designated Nationals.

Related: Tornado Cash is the latest chapter in the war against encryption

Asked about the level of sophistication law enforcement agencies have had in dealing with cryptocurrency-related crime, Illum mentioned one of the biggest gaps in law enforcement at the moment is blockchain training.

“Ace [blockchain] gains adoption, more people are exposed to crypto, which also means more agents or law enforcement personnel need to be exposed to crypto as well.”

Lenfield noted that authorities are beginning to build capabilities around cryptocurrencies, citing the recent establishment of a cryptocurrency unit by the Australian Federal Police (AFP) focused on monitoring cryptocurrencies.

“It’s active in their minds, they’re setting goals and working through it … but as with any aspect, there’s that learning curve that’s going to get them there, but there’s 100% visibility and development in this space from those agencies.”

Earlier in September, crypto incident response team Chainalysis helped police recover $30 million in cryptocurrencies stolen in the Ronin Bridge hack by the North Korea-linked Lazarus group that used Tornado Cash to launder stolen assets.