Tornado Cash: The Recent Hack and Its Effect on the Community

Tornado Cash Recovers After Attack

Tornado Cash, a popular crypto mixer, was hit by a major hack last week. The hacker submitted a rogue proposal for a change in policy and managed to gain 1.2 million votes, surpassing the legitimate votes of 700,000. This left him practically ruling the protocol single-handedly. However, the community regained control of the mixer with a new proposal.

Shortly after the attack, news broke that the attacker voluntarily wanted to reverse the hack by returning the tokens. However, it was not entirely clear whether this was really the case. There were also doubts about the hacker’s motives, with some speculating that it was no more than a joke. This is surprising given the amount of effort that the hacker went to, even attempting to cover his tracks via Tornado Cash. As a result, the hacker managed to sell many TORN tokens for about $890,000 worth of ethereum (ETH), capturing many of the tokens that were already tied up in the governance contract.

After a few days, the hack was resolved, and the original community regained control. A new proposal was passed on May 26, with 517,000 votes in favor and none against. This would allow the original tokenholders to regain their influence. Fortunately, the protocol itself has not changed after the hack.

Outline:

• Tornado Cash hit by a major hack with a rogue proposal
• Hacker gained 1.2 million votes, surpassing the legitimate votes of 700,000
• New proposal passed to allow original tokenholders to regain influence
• Protocol remained intact

Tornado Cash Has Become Illegal

In August 2022, the United States government declared it illegal for US residents to use Tornado Cash due to its use in money laundering activities. The service was found to be used by criminals to launder money and even by the North Korean government to finance its nuclear weapons program. As a result, the service became almost unusable almost immediately.

One of the Tornado Cash developers who happens to live in the Netherlands was arrested due to his alleged involvement in enabling money laundering. He can now sit out the trial at home. This puts Tornado Cash and the entire DAO at risk of legal repercussions.

Outline:

• Tornado Cash declared illegal for US residents
• Service used by criminals to launder money and North Korean government to finance nuclear weapons program
• Developer based in the Netherlands arrested for his alleged involvement in enabling money laundering
• Tornado Cash and DAO at risk of legal repercussions

Conclusion

Tornado Cash has had a rough few months, with the recent hack and the illegal declaration from the US government. These events have put the entire DAO at risk and called into question the legality of cryptocurrencies and decentralized finance. Nevertheless, Tornado Cash seems to have survived the latest challenge in the hands of the true community, displaying its resilience and the broader community’s trust.

The recognition that Tornado Cash is not inherently criminal but rather co-opted for unlawful purposes should provide a path towards regulation rather than banning the system outright. The community must work with regulators to establish appropriate regulations that protect against money laundering while preserving the essential principles of cryptocurrencies and decentralized finance. This way, we can make sure that our technological advancements benefit us all.

Outline:

• Tornado Cash has had a rough few months with the recent hack and illegal declaration from US government
• Events have put the entire DAO at risk and called into question legality of cryptocurrencies and deFi
• Recognition that Tornado Cash is not inherently criminal but rather co-opted for unlawful purposes
• Community must work with regulators to establish appropriate regulations that preserve essential principles of cryptocurrencies and decentralized finance