An Analysis Of The Tornado Cash Sanctions Imposed By The U.S. Government

Source :

In this article, we will examine Tornado Cash and why it would be targeted by the US government. Is there a reason why an address might interact with the service?Addresses associated with the service have been made public online. By using those addresses, answer the following questions: Do any addresses still use the service despite the sanctions? Which addresses have been interacting with Tornado Cash the most? Describe how the groups use the service differently based on the frequency and volume of tokens. Are there any other interesting facts about its users?

Tornado.Cash: A Brief Overview

The public has access to your entire Ethereum transaction history and balance by default. You can easily track the source of your funds, calculate your holdings, and analyze your on-chain activities if you know your address on block explorers like Etherscan.

If you, however, did not want all of your history and balances to be visible to the public. Tornado.cash makes this possible on Ethereum. Through breakthrough, non-custodial technology based on strong cryptography, it is possible to send Ethereum cryptocurrency completely anonymously. 

How does its Works ?

In Tornado, the recipient and destination addresses are separated on the chain, enhancing transaction privacy. Deposits are accepted through a smart contract that can be withdrawn by a different address. As long as ETH is withdrawn by the new address, the transaction cannot be linked to the deposit, thus ensuring complete privacy.
Tornado.cash steps in to ensure 100% anonymity with zkSnarks proofs by acting as a proxy.

Note : The zk-SNARK stands for “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge” . Zk-SNARK is a proof construction that allows one to prove possession of certain information, such as a secret key, without revealing that information and without interacting with the verifier. 

Referred : Website

Why Is Tornado Cash Blacklisted By The U.S. Government?

The Tornado Cash mixer not only helps cybercriminals launder the proceeds of crime, but also conceals the origin and transfer of this illicit virtual currency, helping hackers, including those subject to U.S. sanctions, launder the proceeds of their crime, a senior department official said. According to their investigation, over $7 billion has been laundered through Tornado Cash since the company was founded in 2019.The Treasury Department has banned all Americans from using Tornado Cash because of all these investigations by the U.S Government. 
As part of its Specially Designated Nationals (SDN) list, a running tabulation of blacklisted individuals, entities and cryptocurrency addresses, the Office of Foreign Assets Control (OFAC) added Tornado Cash to its list on Monday(Aug 8,2022). Therefore, Tornado Cash or any Ethereum wallet address tied to it is not accessible to U.S. persons or entities. There may be criminal penalties for those who violate this rule.

This tweet reveals the latest news about Tornado Cash, which was blacklisted by the U.S. Treasury Department.

Even though Sanctions Have Been Imposed, How Many Wallets Are Used By It?

Following is a table that shows the number of users and transactions that have continued to take place since the ban of Tornado Cash.

From the below graph, we can see Tornado cash wallets that were active before and after it was banned since August 1st 2022.   There were 662 Active Users between August 1, 2022 and August 10, 2022. Out of the 2 Time Periods, Time Period Before Ban contributes the most (83.69%) to total Active Users. The lowest number of Active Users is After Ban  and the highest number is Before Ban . An active user count of 110 was observed on August 8, 2022, while a user count of 10 was observed on August 10, 2022 so far by the time I am writing this post.

The Groups Are Different In Their Usage Of Tokens

In this section , here from the below graph we can see the tornado cash withdrawal transactions by token wise before and after the ban. A total of 1,088 transactions were recorded between August 1, 2022 and August 10, 2022. In total, 10,000 DAI 2 Token Withdrawals accounted for 30.51% and the Top 2 (DAI And DAI2)  Token Withdrawals accounted for over half (50.74%). A maximum of 198 transactions were observed on August 8, 2022. As you can see from the graph below, after the ban (August 8,2022) we didn’t notice USDC Token withdrawals. There could be a lot of media coverage about Tornado Cash due to sanctions imposed by the US government and the freezing of $75K in USDC from Circle. 

Here is the tweet showing the US government sanctions and the freezing of $75K USDC from Circle on Tornado Cash.

Which Addresses Are Interacting The Most? 

Here from the below graph we can see the token withdrawals on Tornado cash after the ban and their percentage view . And also here we can see almost more than 90% of withdrawn tokens are DAI . And also here we did not see the USDC token withdrawals after ban happened . It might be because of the circlepay freezes over 75,000 USDC funds of wallets addresses linked to blacklisted Tornado Cash . Now the most of the DAI addresses have been interacting the most with Tornado Cash.

Tornado cash Transactions

The below graph shows withdrawal transactions on Tornado cash before and after the ban.  There were 1,088 transactions between August 1, 2022 and August 10, 2022.  There are two times in which Transactions are recorded, with Time Before Ban contributing the most (82.35%) to the total transactions.  August 8th and 9th, 2022 was the day when the maximum transactions were observed, 198 and 178 respectively. The majority of withdrawals from Tornado Cash are made by users because of the ban.

Observations

  • Here is the recent breaking news that the U.S. Treasury Department has blacklisted Tornado Cash and all of its Ethereum addresses, effectively barring U.S. residents from interacting with the privacy service. The blacklisting occurred on August 8, 2022.
  • Even though sanctions have been imposed, there we can see a 82 active users are still using the Tornado cash by the time I am posting my article.
  • As a result of the above analysis, Tornado Cash has been interacting most with DAI addresses. It might be due to the fact that Circlepay has frozen over 75,000 USDC funds linked to blacklisted Tornado Cash wallet addresses. This ban could be due to the fact that users are no longer able to use USDC Tokens, since Tornado Cash interacts with most of the DAI addresses.
  • Based on the above analysis, when it comes to Tornado Cash withdrawal transactions before and after the ban, August 8th and 9th, 2022 were the days with the highest number of transactions, 198 and 178, respectively. As a result of the ban, users make the majority of withdrawals from Tornado Cash. That means we can say more than 195 transactions were happened on Tornado cash after the ban .

References: On August 8, 2022 Tornado Cash was designated as a sanctioned entity by the U.S. Government . For more

Reference Query:

with tcash_lbl as(
  select
  address,
  address_name
  from flipside_prod_db.crosschain.address_labels
  where project_name = 'tornado cash'
  ),
eth as (
SELECT 
    	eth_to_address as recepient, 
  	block_timestamp,
  	tx_hash,
  	amount_usd
FROM ethereum.core.ez_eth_transfers trnsf 
INNER JOIN tcash_lbl ON trnsf.ETH_FROM_ADDRESS = address
WHERE token_withdrawn is not null
  and block_timestamp >= {{start_date}}
),
erc20 as (
SELECT 
    	TO_ADDRESS as recepient, 
  	block_timestamp,
  	tx_hash,
  	amount_usd
FROM ethereum.core.ez_token_transfers trnsf 
INNER JOIN tcash_lbl ON trnsf.from_address = address
WHERE token_withdrawn is not null
  and block_timestamp >= {{start_date}}
),
pullouts as (
  SELECT * FROM ETH 
  UNION 
	SELECT * FROM erc20
)
SELECT 
	date_trunc(day, block_timestamp) as date,
	case 
		when date<= '2022-08-08' then 'Before Ban'
		else 'After Ban'
	end as time_period,
	token_withdrawn,
	count(distinct recepient) as wallets,
	count(tx_hash) as txns
from pullouts
GROUP BY date, time_period, token_withdrawn

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