The U.S. Government’s Hypocritical Case Against Tornado Cash

You would think the government would be against an online privacy service facilitating money laundering. But it actually created one of the best, says attorney Alexandra Damsker.

AccessTimeIconMay 7, 2024 at 5:06 p.m. UTC
Updated May 7, 2024 at 5:21 p.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global event for everything crypto, blockchain and Web3.Register Now

I’ve been thinking quite a bit about Tornado Cash recently, which is unusual, because I normally spend approximately zero minutes thinking about crypto blenders most days. For reference, Tornado Cash is an Ethereum application that, among other tools, offers the ability to pool assets to allow privacy.

Blockchain transactions are typically public/private transactions. That is, users can shield their identity in transactions by using a coded, unidentified wallet, but all transactions are public and trackable. That is actually the point of blockchain: trackable asset transactions. However, sometimes people don’t want their transactions tracked, for various reasons, some nefarious, others to do with issues like personal safety.

Alexandra Damsker's book, "Understanding DeFi" (O'Reilly), was published in February 2024. This op-ed is her personal view.

So privacy services like Tornado Cash exist, bundling assets together by the thousand and allowing individual wallets to shield the origin or lose the tracking of a particular asset. (This doesn’t work for unique assets, like one-of-one NFTs, for example.) It’s just a series of open-source smart contracts on the EVM (Ethereum compatible blockchain) that provides the pooling deposit and withdrawal service. To my knowledge, it does not take a percentage fee of any transaction.

So, this would exist, and no one would really care, except it’s used for money laundering. A LOT of money laundering. Especially by the North Koreans. And, naturally, that brings the attention of the U.S. government. The Treasury Department sanctioned the service in 2022, declaring it a “mixer,” which is illegal. They have arrested one and charged three of the Tornado Cash developers with conspiring to commit money laundering, conspiring to operate an unlicensed money transmitter and conspiring to violate sanctions law by creating and operating Tornado Cash.

Tornado Cash argues it was a money transmitter business (an unlicensed one), in that it received and transmitted currency, and nothing more. That’s not really a great argument, in general; it doesn’t save them from much.

Here, I think, there is a better argument to be made in that the definition of money transmitter business requires a “party” to be sending and/or receiving currency. If you dig into what that actually means, we’re likely going to end up with a definition like this, from the Code of Federal Regulations: “an individual, a corporation, a partnership, a trust or estate, a joint stock company, an association, a syndicate, joint venture, or other unincorporated organization or group, an Indian Tribe (as that term is defined in the Indian Gaming Regulatory Act), and all entities cognizable as legal personalities.”

Without knowing more about the structure of Tornado Cash -- but seeing that the government charged the founders, not an entity – it looks like it was just a series of unowned smart contracts. Smart contracts are unlikely to be recognized in that definition without modifying the definition to include smart contracts and other algorithm-based operators.There was no “party” that could receive or send anything.

Still, the money laundering part -- that sounds bad, right? Creating something that shields illegal activity must be something the federal government hates. Except when it creates it.

For those who don’t know the history of The Onion Layer project, it was created in 1995 by three scientists at the Naval Research Lab for the express purpose of using the internet (recently opened from strict government and academic use) without being tracked. It was jointly funded by the Naval Research Lab and the Defense Advanced Research Projects Agency (DARPA), and eventually, in 2006, became Tor, the primary browser of the dark (or unindexed) web. Tor was created and used by the U.S. government for passing along and receiving coded intelligence messages, protecting the identities of agents and dissidents. It relies on the exact same principles as Tornado Cash. It has many users, without discretion as to whether the nature of the user or transaction is legal and exists to shield the privacy of particular users (i.e. for the exact same reasons).

It is well known that a massive amount of illegal transactions occur via Tor, the least of which is money laundering. (I tried to find a reliable statistic on the amount of darknet laundering and fraud, but, being the dark net, the numbers ranged from $1 to $100 billion.) Adversarial nations can access the browser -- both they and the US government count on the traffic and language-jumble to make masking easier. The government not only accepts this; it invites more people to participate. The CIA even gives you convenient access to their Tor portal at, helpfully suggesting you use a VPN router “to mask your originating internet protocol (IP) address.”

I’m sure the government will rush to sanction itself for these activities, too (just kidding) since it’s illegal to “obfuscate the proceeds from illicit cyber activity and other crimes. . .including sanctions evasion through mixers, peer-to-peer exchangers, darknet markets, and exchanges[, ]. . . facilitation of heists, ransomware schemes, fraud, and other cybercrimes,” according to a 2022 U.S. Treasury press release, and this could equally apply to both Tornado Cash and Tor.

I’ll just wait while they do that. Good thing I brought a book to read. Hey, is that Godot…?

Edited by Benjamin Schiller.


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Alexandra Damsker

Alexandra Damsker is a securities attorney and serves as a consultant, advising funds and traditional and web3 projects or companies on various legal and operational issues. She was previously an attorney with the US Securities and Exchange Commission and Mayer Brown. Her book, "Understanding DeFi" is published by O’Reilly (2024).

Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to to register and buy your pass now.

Read more about