Tornado Cash, a popular crypto mixing protocol, has seen a resurgence in 2024, with deposits exceeding $1.8 billion in the first half of the year. This marks a 45% increase compared to the total amount deposited in the platform throughout 2023, as reported by blockchain analytics firm Flipside Crypto. The renewed interest in Tornado Cash comes after a period of decline following sanctions imposed by the US government two years ago.
However, the platform has also attracted attention from bad actors, with hackers responsible for major thefts depositing large sums of money into Tornado Cash. For example, the perpetrator of the Poloniex exchange heist, who stole over $100 million last year, transferred $76 million to the mixer in the past two months. Additionally, hackers involved in the HECO Bridge and Orbit Chain exploits moved $166 million and $47.7 million, respectively, to Tornado Cash this year.
In 2022, Tornado Cash faced sanctions from the US Treasury for laundering more than $455 million in cryptocurrency stolen by the North Korea-affiliated hacking group, Lazarus. Following the sanctions, monthly deposits to the platform plummeted by over 90%. The decentralized nature of the protocol poses challenges for US authorities in monitoring its usage effectively, as the platform prioritizes privacy in line with the principles of decentralized cryptocurrencies.
Despite the regulatory challenges, blockchain analytics firm Chainalysis noted a general uptick in market activity for mixers in 2024. Mixing services like WasabiWallet, JoinMarket, and Tornado Cash have experienced significant growth in recent times. These services were originally designed to protect user privacy by pooling funds from transactions, making it difficult to trace the origins of the assets. This feature has made them attractive to malicious actors seeking to launder illicitly obtained assets.
In response to the increased usage of cryptocurrency mixers by bad actors, democratic representatives have proposed the US Blockchain Integrity Act. The legislation aims to disrupt the flow of illicit funds and enhance transparency by prohibiting financial institutions, cryptocurrency exchanges, and registered money service businesses from accepting funds processed through a mixer. Failure to comply with the regulations could result in civil penalties of up to $100,000.
The US government’s crackdown on crypto-mixing services has been evident in recent convictions and indictments. The founder of Bitcoin Fog, a $400 million crypto-mixing service, was convicted of money laundering, while the co-founders of Tornado Cash, Roman Storm, and Roman Semenov, have been indicted on charges related to money laundering, violating US sanctions, and operating an unlicensed money-transmitting business. These developments signal a growing scrutiny of crypto mixers by regulatory authorities.
