Maintaining financial privacy is essential to preserving freedom but it should not come at the cost of non-compliance, says Tornado Cash. The coin mixer company is using a tool from blockchain tracking firm Chainalysis to prevent addresses sanctioned by the US government from using the privacy app.
Tornado Cash uses the oracle contract to block US Treasury’s Office of Foreign Assets Control (OFAC) sanctioned addresses from accessing the DApp. This comes after the OFAC identified the wallet known to have received stolen funds from the Ronin Bridge last month as controlled by the North Korea-based Lazarus Group. Experts say Tornado Cash is more private as it works by breaking the on-chain link between source and destination addresses. There is a smart contract where deposits are mixed with other deposits. It can be withdrawn by a new address.
The Chainalysis oracle is a smart contract that works on Ethereum and other networks, including BNB Smart Chain, Avalanche, and sidechain, as well as layer-two networks such as Polygon. It’s a piece of code that scans a cryptocurrency address and determines if it’s subjected to sanctions. If it is, the address is blocked. Basically, this tool saves Tornado Cash the hassle of trying to maintain compliance on its own.
However, sanctioned users can make another wallet that doesn’t use Chainalysis API to process transactions from non-sanctioned addresses. Tornado Cash had earlier said that enforcing sanctions against it and other decentralized protocols was technically impossible. Roman Semenov, the co-founder of Tornado Cash, said developers didn’t have more access to the protocol than other users. He highlighted that no much can be done.