Ever since being sanctioned by the US Department of Treasury and Department of Justice, with its founder arrested, any interaction with Tornado Cash contracts is considered illegal. Major exchanges and RPC service providers have banned interactions with Tornado Cash contracts. As a result, Tornado Cash’s transaction volume has dropped by 90%.

Tornado Cash is now governed by a DAO. The cause of this attack may be attributed to a junior developer called Butterfly Effect (or possibly a disguised malicious developer) who deployed an incorrect proposal contract #32. This led to the direct loss of collateral for several major Tornado Cash relayers, resulting in a loss of $30,000 to $60,000. Butterfly Effect claimed to compensate for the issues caused by the previous contract by submitting a new proposal #34, which introduced unnecessary operations and triggered a crisis of trust within the community. Shortly after, the only official developer, Theo, announced his resignation from direct involvement in Tornado Cash maintenance due to health reasons.

A few hours after Theo’s resignation announcement, the large-scale DDoS attack began, targeting all tornado.ws websites and related Telegram groups.

The main Tornado Cash website, https://tornado.ws, was quickly restored by Theo. However, during this time, scammers spread phishing websites in the Telegram groups. The most frequently received phishing link was https://tornado.foundation. Telegram groups were then flooded with numerous join requests, and shortly after, the post-sanction English group was closed by Telegram officials. The Chinese group also experienced a flood of join requests from bots, but for now, there doesn’t seem to be a risk of the Chinese group being closed. The Chinese group mainly consists of TORN token holders, many of whom went from holding $100 worth of TORN to just $3. They still hold hope for TORN’s price to recover.

The entire Tornado Cash team has been targeted by the US government, but they left behind a governance mechanism that allows the Tornado Cash community, through holding TORN tokens, to govern it without any owners. The smart contracts of Tornado Cash continue to function despite being deemed illegal by the US government. Thus, the story of Tornado Cash continues.

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The purpose of Tornado Cash is to act as a privacy-enhancing intermediary in crypto transactions. Usually, crypto is exchanged directly between two parties, leaving a record linking the sender to the receiver.

Tornado Cash works to break this link by taking crypto deposits, disassociating them from their senders, and then giving them back out to any other party that has a deposit’s associated security key.

Here’s a summary of how Tornado Cash works:

A user chooses a cryptocurrency and the amount they want to deposit to Tornado Cash.

The user connects their crypto wallet to Tornado Cash to facilitate the transaction.

Tornado Cash generates a security key specific to the deposit, which the user copies.

Once the transaction is authorized and completed, Tornado Cash puts the deposited crypto in a shared pool, where it’s disassociated from the depositor’s crypto wallet address. This is known as “crypto tumbling” or “crypto mixing.”

A person who has a deposit transaction’s associated security key can use it to withdraw crypto from the balance into their own crypto wallet.

A person withdrawing crypto from Tornado Cash may also use a “relayer” program. A relayer takes a withdrawal request, then files it with Tornado Cash on the user's behalf. So the person can withdraw crypto from Tornado Cash without having the withdrawal transaction directly linked to their crypto wallet address, further protecting their privacy.

Tornado Cash is currently illegal in the United States. The reason for this is that it subverts Ethereum’s default blockchain structure of having all transactions on the blockchain be public.

Under this setup, a person‘s personal information isn’t attached to their crypto transactions, but their crypto wallet address is. This allows a person’s transaction history to be traced and possibly linked back to the person’s true identity in some circumstances.

Tornado Cash gets around this by allowing users to deposit crypto into a shared pool, and then withdraw part or all of the balance from the pool later by using an associated security key. The pool’s protocols work to disassociate depositors’ addresses from the crypto they contribute. So a user must only know a deposit transaction’s corresponding security key to withdraw from the balance again. They don’t have to be the same person who made the deposit.

This means that Tornado Cash makes it impossible to tell what crypto in a pool belongs to which person, and very difficult to tell who is sending crypto to whom (it could even be the same person using a different crypto wallet). This anonymization presents some potential concerns, as we’ll expand on next. But the main problem with this is that this technology is often used by criminals to make it easier to get way with various forms of crypto fraud.

In August of 2022, the US Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash. The agency claimed that Tornado Cash enabled money laundering by failing to balance its transaction-anonymizing capabilities with sufficient controls to prevent criminals from depositing stolen crypto. This included over $455 million worth of crypto assets believed to have been stolen that year by a North Korean hacker group.

Because of these Tornado Cash sanctions, it’s currently illegal for US citizens, residents, and companies to use Tornado Cash for depositing or withdrawing crypto.

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