Does OFAC Really Know What They’re Doing? A War On Crypto And Privacy

This month, we witnessed one of the most significant attacks on crypto privacy in the form of the US Treasury’s Office of Foreign Assets Control (OFAC) sanctioning Tornado Cash. This led to protocols blocking addresses, funds being seized, and one of the Tornado Cash developers being arrested. The action was unprecedented, given that it was the first time we have effectively had sanctions placed on a piece of open-source software – essentially, restrictions on lines of code. 

For those unfamiliar with Tornado Cash, it has long been one of the most well-known mixing protocols on Ethereum. What it would essentially do is obfuscate or camouflage transaction history. This means it would anonymize transactions and remove all traces of where funds originated. Thousands of people used this privacy tool in the Defi space.

Unfortunately, it was also used for laundering the proceeds of cybercrime, which is the use case the Treasury focused on, stating that Tornado was a favorite tool of North Korean hackers and had been used to launder more than $7 billion. 

The moment Tornado was sanctioned, its website was taken down, and the code disappeared from GitHub. Not only that, but one of the contributors had his GitHub account banned. Circle blacklisted any USDC in the affected wallets, and RPC providers such as Infuror and Alchemy started blocking requests to Tornado Cash Smart contracts. 

Additionally, some decentralized applications also began to restrict access to their front ends for wallets that had interacted with the Tornado Cash Smart contract. For example, both Aave and dYdx reported blocking access from wallets that had interacted with Tornado Cash and even those that had received funds from it. Regarding dYdx, users who had insignificant amounts but were associated with Tornado Cash in the past were also blocked.

Dusting Celebrity Wallets Gag

Things were further complicated because someone in the community started dusting several public ETH addresses of celebrities in the space. In other words, they sent many small transactions to hundreds of known wallets associated with ETH addresses and their .ens official addresses. 

The likes of Brian Armstrong, Jimmy Fallon, and Steve Aoki were potentially committing sanctions violations by appearing to be doing business with a sanctioned protocol. What's even crazier than that is that some of those users who were subjected to the dusting found that they could not interact with Aave’s front end. These included the likes of Anthony Cesano and Justin Sun. 

The gag effectively points out the absurdity of such sanctions for users receiving funds from blacklisted addresses that they have no power to decline. The open nature of crypto is designed to cut out intermediaries, unlike the traditional financial sector that would use banks and other financial institutions to act as gatekeepers against such transactions.

Image source: eff.org

Is Code Fundamentally Free Speech? 

Perhaps the most chilling development, at least so far, was the arrest by Dutch police of one of Tornado Cash’s developers. Alexey Pertsev was picked up by the Dutch Fiscal Information and Investigation Service (FIOD) two days after Tornado Cash was sanctioned. The Dutch police have yet to clarify which exact rules Pertsev broke, but if it's just because he wrote some code, this is a dangerous precedent for several reasons. Furthermore, he is still detained and forbidden from communicating with his wife.  

The first thing we need to ask ourselves, however, is whether these actions by the treasury were legal. It is the first time that the treasury has effectively sanctioned a tool, a piece of Open Source Code that exists on the Ethereum Blockchain and which can be used by anyone for any purpose, albeit good or bad. Given that it is open source, that means it is akin to the likes of a public good. 

So that could be comparable to a road or a park; it would be as if OFAC were to sanction the use of an interstate highway because drug dealers drive on it. Or a more relevant example would be the treasury sanctioning the TCP IP protocol because hackers use the internet for hacking: It's impractical.

Moreover, just because a tool is sanctioned does not mean that the criminals will not use it. That's because criminals, by definition, have zero consideration for the law; they're likely to continue using the Smart contract as they see fit. Then there is the fundamental question of whether sanctioning a piece of code violates the First Amendment. 

To put it in perspective, thanks to a 1996 case Bernstein versus the DOJ, it's been established that code should be considered as speech, and if it is indeed speech, then it should be protected by the First Amendment. By sanctioning this tool, the treasury effectively says that speech itself is illegal. 

Now there is a real possibility that should someone want to challenge these sanctions, they could have a strong case in court. The Coin Center lobbying group is doing just that and believes the Treasury has overstepped its legal authority. The group wants to engage with OFAC to share their thoughts and will be exploring with counsel a court challenge. Additionally, they have had inquiries from members of Congress about the situation and are keeping the interested parties briefed on the matter. 

Furthermore, if, indeed, the only thing the developer did was write code, then that could also be seen as a violation of free speech. But if any legal challenges are mounted, they will take a long time to settle. Until then, the sanctions will have to be enforced, which means that specific Defi projects and protocols will continue blacklisting the Smart contract for fear of arrest. 

What Are The Practical Issues? 

Apart from the legal aspect, there is a practical consideration for how this will be enforced.  Remember, criminals will be criminals, and they will continue to use it. The code is open source and free to fork. Should that happen, the treasury will ultimately be playing whack-a-mole with a bunch of newly deployed Smart contracts. 

Not only that but those other crypto projects and protocols will also have to monitor not only the funds coming from the original Tornado Cash Smart contract but also from all the forked ones. This could quickly become a logistical impossibility, and projects will always have to worry whether any ETH they handle has gone through a forked version of the original Tornado Cash.

And speaking of which, there's also the broader question around who could technically find themselves violating OFAC rules due to these sanctions. 

If someone sends ETH from the Tornado contract to you, does that mean you are in violation? I mean, it's not like you can refuse to receive it. As we saw with those dusting attacks, protocols themselves have started blocking some of these dusted addresses. Could the Feds start going after any of those wallets that have received Tornado-tainted ETH? Could we soon see Jimmy Fallon dragged away in handcuffs? 

It's not even about addresses that have received funds. What about liquidity providers on a DEX? What happens if they unknowingly convert ETH that has been through Tornado Cash into some other cryptocurrency? Are they thus engaging with sanctioned entities? 

What about Ethereum miners? What liability did they have if they were to propagate a block that included a Tornado Cash transaction? Does that mean that they could also be flirting with illegality? Or how about that ETH that is sent to the ETH2.0 staking contract? What would that mean for Ethereum’s Proof-of-Stake? 

What happens once the transition to proof of stake is complete? Will validators have to decide to censor certain transactions that their jurisdiction deems illegal? Could they get censored? So you can see how quickly this grows out of control. The crypto space has just seen a massive can of worms open up right in front of it. 

Now, of course, there will be some who claim that these actions are justified. Swiped funds from some of the most high-profile crypto hacks of the past two years have gone through Tornado. This was seen in the wake of the $100 million Harmony hack a few weeks ago. 

Why Do We Want Privacy?

Many people have been asking whether there are any legitimate use cases for Tornado Cash, a tool designed specifically for privacy. Essentially this all comes down to the broader question of why someone would want to have financial privacy in the first place. As the old saying goes, “why do you worry if you have nothing to hide?” 

Well, for plenty of reasons; firstly, because blockchains are public and transparent, everyone can see exactly what your wallets are doing and what you could be buying or investing. This is not the case with traditional finance, where your bank account balances and spending habits aren't public. The moment they are public, and someone can attach them to your IRL identity, it opens you up to potential physical harm if criminals ever want access to your crypto. 

Or perhaps you wanted to donate crypto to a cause that may get you into serious trouble in your country. For example, what happens if you were a citizen of Iran or Venezuela who wanted to donate to a journalist or newspaper that the government didn't like? Blockchain is immutable; you’d live in constant fear of being placed on a list of some kind. 

Or how about if you were a Russian who wanted to donate to Ukraine, not something you would like the FSB to know about? On the flip side, you could be a Ukrainian refugee wishing to hide where you are getting your donations from. This is something that Vitalik Buterin himself highlighted earlier this year when he donated to the country. 

Beyond such high stakes implications, it could also just be a situation where you don't want people you interact with on-chain to know what you do with your money. For example, let's assume that you get paid in crypto. That means your employer can see exactly what you do with that money and what you're buying. 

Or perhaps you're buying something from an online Merchant, and you don't want them to know what else you've been spending the money on or how much you have; just imagine the targeted advertising coming your way. Ironically this would be much easier to achieve when paying with a wholly open and permissionless form of money. 

These are reasons why someone would want to anonymize their transaction history. Some might say you could just use a centralized exchange; however, the whole point of the decentralized and censorship-resistant currency is that you don't have to rely on a centralized gatekeeper. Moreover, some people are just not comfortable having others holding their private keys, and can you blame them? 

OFAC’s False Press Release

In its press release, it was also pretty disingenuous for the Treasury to claim that $7 billion was laundered through Tornado Cash. That was the total volume of transactions, many of which would have been for such perfectly legitimate reasons. 

In fact, according to stats from Chain Analysis, only about 17% of the funds that flow through the protocol were tied to sanctioned activity. The vast majority, 50%, was related to DefI activities. That means that these users were thrown into the laundering bucket by the Treasury when all they were really doing was trying to anonymize their funds. 

Image Source: Chain Analysis

First Crypto War Had Net Positive Result

So this raises the question of what all this means for crypto privacy and also privacy in general. It's pretty clear that privacy is under attack, albeit this move by the treasury was prompted by concerns around the North Korean hacking. Still, this radical approach by the Treasury is so nonspecific for what it's trying to achieve that you have to wonder whether the folks at OFAC gave any thought to collateral damage. 

Many have drawn parallels with the early Crypto Wars, for example. For unfamiliar people, this was when the US government arrested Phil Zimmerman, a developer who distributed PGP cryptography online. They accused him of “munitions export, without a license.” 

They contended that his PGP encryption system was a weapon that adversaries could use. Really? It would seem they don’t consider that any citizen wants and has a right to privacy. Only criminals and enemy governments would want to encrypt their communications. 

Well, it turned out that there were many practical uses for encryption online, and various encryption standards have helped power the multibillion-dollar e-commerce revolution we've experienced over the last 20 years. What was initially considered a way to hide state secrets has allowed legal commerce to thrive. 

Many have also wondered why Tornado Cash got hit and not other well-known crypto projects, like Monero. Virtual mixers seem to be viewed with much more suspicion than privacy-by-default currencies. People could see on-chain how the Lazarus group was laundering its funds through the tool. This isn't something that you can easily observe with Monero. 

Moreover, the sheer volume of funds running through Tornado Cash made it a prime target, but this doesn't mean Monero isn't being studied and tracked. There may well be a robust state-backed effort to crack the ring signature technology for which Monero is famous. This is perhaps one of the reasons why the Monero developers pushed through some new upgrades to the protocol only recently. 

Crypto And Congress Take A Stand

There has been a genuine outcry from the crypto industry arguing that the Treasury Department’s actions to shut the Tornado Cash could be “unconstitutional” as people have a right to privacy. 

Abraham Piha, co-founder, and CEO of Web3-focused firm Tomi, told Cointelegraph, 

“Tornado existed only because most blockchains were not private enough. If successive updates of Ethereum or Bitcoin include protocol integrations like Mimblewimble, will the next step be to block them as well? This act is yet another reason to push for Web3, a free web, controlled by users and not by some big brother governments.”

Kenny Li, co-founder and core developer for Manta Network, a privacy-preservation protocol, said that the Treasury’s decision to sanction Tornado Cash is far-fetched and extreme, even though, in the past, specific individual crypto wallet addresses have been subject to the same treatment. But in most cases, he said, there was a clear case of fraud, hacks, or a Ponzi scheme:

“In this case, smart contract addresses are being blacklisted. Smart contracts aren’t people. Not only that, but people forget that Tornado Cash is a protocol, not a person or an entity, which means it will continue to run regardless of the sanctions. It is time that we realize privacy and anonymity aren’t the same, and Web3 is all about privacy.”

Additionally, some Congress members are standing up, demanding an explanation from OFAC. Specifically, United States Congressman Tom Emmer sent a four-page letter to Treasury Secretary Janet Yellen regarding the unprecedented sanctioning of Tornado Cash. 

He posed a series of questions that sought to clarify the position of the Treasury Department’s OFAC. They were practical questions noting that Tornado Cash is a collection of several Ethereum Smart contract addresses that are not controlled by an individual or entity. 

Emmer asked what persons could be associated with those addresses and:

“Given that the Tornado Cash back-end will operate unchanged […] as long as the Ethereum network continues to operate, who or what entity did OFAC believe was reasonably responsible for imposing controls on the Tornado Cash blockchain contracts?”

Emmer posted the full letter on Twitter, stating that the growing adoption of decentralized technology would certainly raise new challenges for OFAC. Nonetheless, technology is neutral, and the expectation of privacy is normal.

Closing Thoughts

Firstly, I dare say we can all agree that those who engage in criminality should be brought down. The laundering of ill-gotten gains, be it through a bank account or a Defi protocol, should be prosecuted to the full extent of the law. 

Those wallets linked to criminal activity should also be sanctioned and flagged. This is precisely what the treasury did before the Tornado Cash sanctions were imposed. And it's not as though this approach wasn't enjoying some success. Thanks to some pretty advanced tools and tracking services, law enforcement can catch such miscreants more effectively than they could in the past. 

They also have the power of subpoenas and search warrants. They simply didn't need to take this action against Tornado Cash. The collateral damage resulted in a loss of privacy for some and a massive disruption for all in the Defi space. 

As for those North Korean hackers, they'll switch to one of the other 100 or so laundering techniques they were using long before Tornado started operating. Moreover, given that tornado cash is nothing but code, it'll be hard to outlaw permanently; it'll be a game of whack-a-mole. It won't have the desired effect. And the collateral damage is already permeating the crypto industry. 

These actions also raise legal questions. Is this a breach of the First Amendment, and what happens to any citizens who have used it in the past? Or anyone that interacts with it? It's a legal quandary, to say the least. 

With legal challenges brewing, this could turn into a new crypto war. One, with a positive long-term impact, as we saw with the first crypto war. Or maybe the large centralized institutions will conform, and we’ll have a more amenable but less free crypto space. It does demonstrate how some developers will continue to embrace decentralization, and many of us as individuals will fight for our right to freedom and privacy. 

Reference:
Coin Bureau
Cointelegraph

Also published @ BeforeIt’sNews.com; Steemit.com

Tim Moseley

2022 Q1 Survey Reveals Over Half of South Africans Know Little or Nothing About Cryptocurrency

In many countries, years of ultralow interest rates coupled with the government stimulus unleashed during the pandemic sent cash flows into riskier investments, like tech stocks and crypto. Now some of those initiatives are winding down, and the potential for inflation to weigh on economic growth has many exploring safer investments than they'd gone for in the past.

Over the years, cryptocurrencies have become a viable way of conducting transactions anytime and anywhere. This is possible through users' ability to transact with each other directly without any intermediaries. Based on the value of their virtual money, cryptocurrencies are also referred to as money. South Africans use cryptocurrencies, but many still don't know much about them. The cryptocurrency space has been left to develop organically in South Africa, with no clear-cut awareness to encourage maximum adoption.

The Merchant Consumer Survey revealed that 53% of South African participants knew little about cryptocurrencies. Interestingly, nearly half of respondents said they would be more open to the cryptocurrency space if local banks offered such services. The report noted a considerable growth opportunity for crypto trading platforms on the African Continent. In South Africa, local exchanges lead the way, in stark contrast to the rest of the continent, where global exchanges lead in market share.

According to the report from Merchant, a global telemarketing firm:

• Only 14% of South Africans have any significant knowledge of the cryptocurrency industry.
• 23% of participants remained neutral.
• The vast majority (53%) said they had limited or no knowledge of the matter.
• 18-24-year-olds have higher literacy rates than any other demographic group, including 25-42-year-olds.

The survey also noted that cryptocurrency adoption in South Africa could be boosted if domestic banks embrace the asset class and offer educational programs to users.

Due to technological advancement, cryptocurrency is being used to a certain extent in South Africa. Businesses can accept and pay their employees using cryptocurrency without affecting their current cash flow. Additionally, some South Africans use cryptocurrency as a hedge against inflation. By purchasing cryptocurrencies when prices are low and selling them when prices rise, users earn more money than they spent on their investments. Through this strategy, they become financially independent from traditional banks that charge high-interest rates on loans.

“There is a real opportunity for banks to get involved in cryptocurrency as it begins to really take off on the continent, rather than waiting until it is more established – by when consumers are likely to have a preferred platform or partner who they have built that trust with.”

– Group CRO, Merchants

Another recent report by Bitget Exchange, Boston Consulting Group, and Foresight Ventures found that South Africa has the continent’s most significant cryptocurrency market, as evidenced by its more advanced financial infrastructure and fiat-to-crypto payment rails.

Source: BCG, Bitget and Foresight Ventures Report File

The report noted a considerable growth opportunity for crypto trading platforms on the African Continent.

On-platform exchange services, such as Coinbase and Gemini, have been less competitive in the African market. However, with few existing exchanges offering access to fiat currencies or local payment methods, it might be challenging for them to thrive in that market.

In Summary 

Despite the benefits that cryptocurrencies offer users, including lower transaction fees, increased financial security, and uncomplicated business operations, few people know much about them in South Africa at present. As awareness rises among local users, more will start investing in cryptocurrency and allowing themselves greater economic freedom over time.

Cryptocurrency transactions help to remove the procedural bottlenecks that plague traditional banking and financial services. Fearing a collapse of the banking industry or arbitrary appropriation of money by the government, Africans who live in politically unstable countries could be attracted to cryptocurrency.

Generally, it is expected that there will be an increase in cryptocurrency awareness amongst users in Sub-Saharan Africa over the coming years. This would drive the adoption of cryptocurrencies within the region.

Tim Moseley

Five Institutions Trying To Wipe Out The Crypto Industry 

As cryptocurrency adoption continues, the opposition from institutions that control and benefit from the corrupt financial system that cryptocurrency is in the process of replacing also continues. These powerful institutions have significantly increased their efforts to bring down the crypto sector specifically. 

Below are five organizations that have been working hard to regulate, restrict, subvert, and tear down the crypto industry for the last few years, and it's time to call them out by name. So, how are they trying to do it? Will they succeed? And what will it mean for cryptocurrency?

1: The Bank for International Settlements

The Bank for International Settlements (BIS) is the first institution trying to destroy crypto. This is the self-described bank for central banks. The BIS is based in Basel, Switzerland, and is owned by the 63 central banks that make up its membership. The BIS was founded way back in 1930 and is technically the oldest International financial institution in existence. 

Interestingly, the BIS was supposed to be disbanded in 1944 as part of the Bretton Woods Conference, but it hasn’t happened yet. On its **website, the BIS says this is because the financial elite at Bretton Woods didn't believe the BIS would play a useful role once the IMF and the World Bank had been established. 

**Image source: BIS website

Curiously, however, a memoir by one of the economists present at the Bretton Woods Conference revealed that the institution's intended dissolution was because the BIS had allegedly assisted the Nazis in taking gold and other assets from occupied countries. This was proven true in 2013 when the Bank of England declassified documents about how it helped the BIS and the Nazis take gold from Czechoslovakia. 

Despite this history, the BIS was never disbanded, partly due to influential economists like John Maynard Keynes. Keynes is famous for pioneering so-called demand-side economics; it’s the theory that the demand for goods and services is what causes economic growth and inflation, fundamentally; a view popular with many Central Bankers.

Today, the BIS has undertaken a similarly disturbing role, and that's to assist central banks in developing their respective Central Bank Digital Currencies, or CBDCs. This financial system will give the central banks the power to decide what you can buy, when you can buy it, where you can buy it, how much money you can spend, and even how much you can save. In the words of BIS manager Agustin Carstens, “The central bank will have absolute control…” and “…will have the technology to enforce that control.” 

Image source: Twitter 

Not surprisingly, the BIS is opposed to cryptocurrencies of all kinds, especially stablecoins. This is because cryptocurrency undermines the total control of the currency that its associated central banks are explicitly trying to achieve with their CBDCs, which are essentially direct competitors to stablecoins.

The BIS’s anti-crypto activities have been limited to reports about why cryptocurrencies are bad and why CBDCs are better, as detailed in this article and clearly shows that nobody is buying what they’re selling. Many are skeptical and can see through their agenda; still, the BIS has undoubtedly an incredible amount of influence given its history and the advocacy of central bankers worldwide. 

2: The Financial Action Task Force

The Financial Action Task Force (FATF), an international organization based in Paris, France, is the second institution trying to stymie crypto. It consists of 40 countries and dozens of other international organizations, including the IMF and World Bank. The FATF was founded in 1989 and was initially established to combat money laundering worldwide. 

Its mandate has since expanded to include anything threatening the system's integrity. It achieves this by issuing so-called recommendations about the kinds of financial regulations that countries should implement. The FATF drafted its first set of 40 recommendations one year after it was founded. 

The most infamous of these recommendations is the so-called travel rule, which requires financial institutions to collect detailed information about anyone sending or receiving more than a certain amount of money, usually around $1000. Although the FATF doesn't have the power to write national laws, any countries that fail to comply with its recommendations often find themselves on its grey list or, worse, its black list. 

Being on the former makes it difficult to interact with the Global Financial System, and being on the latter makes it impossible. That's why more than 200 countries have chosen to comply with the FATF's recommendations. 

Now, if you're wondering who writes the FATF’s recommendations, the answer is nobody really knows. That's because the FATF consists of unelected officials who hold meetings behind closed doors, where they decide what recommendations to pass and which countries land on which list. 

Image source: Islamabad Post

The FATF officials are also effectively “above the law,” thanks to the Vienna Convention on Diplomatic Intercourse and Immunities passed in 1961. Under the Vienna Convention, folks like FATF officials cannot be arrested or detained, they cannot be charged with a criminal or civil crime, and they do not have to pay taxes. FATF officials are also not subject to pandemic travel restrictions. 

While it's not precisely clear who decides what the FATF does, it's clear that it has strong connections to the United States, specifically, the United States Treasury Department. As recently as 2018-2019, Treasury served as President of the FATF, and two of the three lead authors of the finalized recommendations for cryptocurrency were from the Treasury Department. The document notes that the United States is the primary driver behind compliance with the FATF's recommendations. 
 
This may explain why the United States isn't on the FATF’s grey list or black list even though up to 40% of all money laundering happens in the USA and why the countries that do end up on the FATF's gray and black lists tend to be at odds with the interests of the United States. 

Given these facts, it looks like the FATF is another financial weapon the United States occasionally uses against its enemies, and it's a weapon that's being used against cryptocurrency as well.  

Having said that, the FATF doesn't actually want to ban cryptocurrency; it just wants no more peer-to-peer transactions and no more privacy and hopes to achieve this by labeling any technology or activity related to these two as high risk. In other words, the FATF wants to turn crypto into another arm of the existing financial system, which the United States, of course, controls. 

However, countries and indeed crypto firms are reticent and slow on the uptake of its crypto recommendations, and it looks like there are a few which might not implement the crypto regulations the FATF wants to impose. This might have to do with the fact that its recommendations don't work in combating illicit Finance. 

The FATF's own statistics suggest it hasn't made a dent in dark money in over 30 years. If this non-compliance by countries continues, it will be difficult for the fat F to achieve its goal in time. After all, if crypto adoption reaches a Tipping Point, it will be impossible for politicians to pass the crypto regulations the FATF wants to see because the people will vote against such politicians. 

It's also possible that by the time compliance starts, the financial system will have fragmented to such an extent that the FATF no longer has any influence. The unprecedented sanctions against Russia have accelerated this fragmentation. 

3: The International Monetary Fund – The World Bank

The International Monetary Fund (IMF) and the World Bank are the third institutions trying to cancel out crypto. The IMF was created as part of the Bretton Woods agreement mentioned above in 1944. The Bretton Woods agreement is where the world decided to make the US dollar the world's reserve currency. More accurately, it's where the world decided that the other currencies would be pegged to the US dollar at a fixed exchange rate, and the US dollar would, in turn, be backed by physical gold. 

The IMF's initial job was to ensure the exchange rates between other currencies and the US dollar remained stable. But after the US dollar officially stopped being backed by gold in 1971, the IMF turned its focus to financial stability worldwide. The IMF achieves this financial stability by issuing loans to countries in crisis to ensure that the situation the country is facing doesn't become an international crisis. 

These loans are known for including all sorts of terms and conditions that benefit certain institutions. Whereas the IMF issues loans, the World Bank provides longer-term financial and technical support to developing countries. You can think of the World Bank as the “unofficial” other half of the IMF, as it was also created as part of the Bretton Woods conference. 

It’s clear that the IMF is firmly aligned with the interests of the United States, simply because the USA has the most voting power of the IMF's 190 member countries. Arguably, the IMF's hatred of cryptocurrency has mostly to do with BTC. That's because Bitcoin is starting to be adopted as legal tender by the kinds of developing countries the IMF is trying to control, notably El Salvador and the Central African Republic. 

Image source: Cointelegraph

This is why the IMF included a clause in its debt deal with Argentina to discourage cryptocurrency adoption. Something that I'm sure is going to become more common as more countries start adopting crypto and BTC in particular. By the way, the clause didn't work, as Argentinians are still adopting BTC and stablecoins to protect themselves from inflation. 

The IMF's report about the decline of the US dollar stated that the IMF knows that central banks around the world are slowly ditching the greenback in favor of alternative currencies and why it's possible other countries could adopt BTC. 

Case in point, the chairman of the Central Bank of Switzerland recently noted that it could hold BTC on its balance sheet once it becomes big enough. At that point, it's only a small step to legal tender status. It's safe to say this is something the IMF doesn't want to see in any developed countries, which is why the institution has seemingly focused its attacks on BTC.

Lately, these attacks have centered around Bitcoin’s energy use, with the IMF claiming CBDCs are superior because they use less energy. What the IMF won't tell you is that Bitcoin’s energy use is negligible in the grand scheme of things. 

4: Wall Street

The fourth institution trying to invalidate crypto is Wall Street, which is more of a collection of established financial institutions rather than a single entity. As almost everyone around the world knows, Wall Street’s power is truly unprecedented, and most of this power resides in a handful of asset managers like BlackRock and Vanguard and mega banks like JPMorgan and Bank of America. 

Notably, the only reason why these asset managers and banks were able to become so prominent is that they're pretty much first in line at the Federal Reserve money printer. They also have unbelievable influence over politics and regulations in the United States and elsewhere.

You may recall that the Securities and Exchange Commission (SEC) allegedly destroyed documents about the 2008 financial crisis when it was supposed to investigate the asset managers and big banks that caused it. 

A 2012 article from The Huffington Post also notes that Wall Street spent more money on lobbying than any other industry between 1998 and 2011. A spending streak that has now been overshadowed by big tech giants like Meta and mega-corporations like Amazon, which are now the biggest lobbyists. 

The IMF even published a paper in 2019 about the regulatory capture of bank lobbying and how it led to the global financial crisis. While the authors argued that regulations resolved these issues, I think it's apparent to the average person that Wall Street has only become more powerful. 

Like the central banks at the BIS, the asset managers and banks on Wall Street do not want to be replaced by cryptocurrency, which is why most of them have historically been anti-crypto. The thing is that the asset managers and banks on Wall Street also don't want to be replaced by Central Bank Digital Currencies either, and these are quickly becoming a more significant threat than crypto. 

Image source: Markets Insider

It’s already been determined that they would effectively cut commercial banks out of the equation. Even though the CBDC Systems proposed by central banks often include commercial banks at the front end, the BIS and its central banks have admitted in multiple reports that it would be next to impossible for commercial banks to remain profitable under such a system. 

Furthermore, the roles asset managers and banks play could easily be filled by companies in the financial technology sector, such as Revolut and PayPal. It's even possible that crypto companies like ConsenSys could play this role. 

Now this leaves only one option for the asset managers and banks: to take control of the crypto industry and leverage its technology to ensure they remain profitable and ideally leverage it to the point that they can continue to compete with fintech companies. So, how can asset managers and banks take control of the crypto industry?

Well, besides investing heavily in centralized projects with close ties to their constituents, asset managers and banks are also trying to control crypto by forcing it to comply with their ESG agenda, which stands for Environmental, Social, and Governance; in other words, total control. 

The inability to control Bitcoin under this framework is ultimately why Wall Street dislikes Proof-of-work. On the other hand, the Proof-of-stake protocol allows them to procure a controlling stake in any crypto project since they have the capital. 

A scary scenario is that they will be able to implement whatever rules they see fit. If everyone ends up using Proof-of-stake cryptocurrencies, the asset managers and mega banks would finally have total control of the financial system, eliminating governance, politicians, and their accountability. 

I think it’s fair to say many crypto companies would oppose such a takeover from the privileged few, but it's essential to be aware of the game being played and the influential people sitting at the table.

5: The World Economic Forum

The World Economic Forum (WEF) is the fifth institution trying to eradicate crypto. A non-governmental organization or NGO based in Geneva, Switzerland. Klaus Schwab founded the WEF in 1971, and he has served as its executive chairman ever since. 

 As its website states, the WEF’s purpose is to “ shape global, regional and industry agendas. The WEF has the power to do this because it consists of over 4,000 of the world's most influential individuals and institutions, including all the ones mentioned in this article. 

In a previous article, I explain its plans for the world, and they are intensely at odds with the average person. It has astonishing ideas such as “you’ll own nothing and be happy,” which comes directly from the technocratic brain of Klaus Schwab himself. 

The WEF is where ESG standards were established. The recent annual meeting in Davos included a few crypto companies and personnel and a series of panel discussions about crypto-related topics. Seemingly, the WEF had cryptocurrency on its radar since 2013, when crypto bull runs started to occur. However, the WEF isn't all that interested in cryptocurrency per se. Its interest is in the powerful technology that cryptocurrencies use. 

A historical example is the WEF’s Tipping Points Report from 2015, highlighting Smart contracts as a point of interest. Note that this report was published not long after Ethereum was created. A more recent example is this year's Davos meeting, where the Metaverse was almost as big a topic as ESG, with multiple discussions and articles produced by the WEF. 

What the WEF wants is to use technology, like Blockchain, Smart contracts, and the Metaverse, to create the dystopia its constituents want. Regarding the Blockchain, the WEF wants to use it for digital ID, social credit scores, and tracking everything and everyone. Also, tokenizing real-world assets so that their ownership can be controlled and engaging in “stakeholder capitalism via proof of stake consensus mechanisms.” 

If you're wondering who the stakeholders will be, Klaus has stated in many interviews and speeches that he created the WEF so that stakeholders could gather. Let that sink in. 

Image Source: World Economic Forum

Now, when it comes to Smart contracts, the WEF wants to use them for things like automated censorship to prevent the purchase of specific goods and services and to create the kinds of incentive structures the WEF wants to see—for example, artificially increasing meat prices to decrease meat consumption.  

When it comes to the Metaverse, the WEF wants to use it to limit population growth, pacify people in developing countries, and in the words of Schwab's closest advisor, Yuval Noah Harari, “…to give all the useless people something to do.” 

Image source: Mind Matters

The 99% Wake Up And Withstand

Fortunately, the world is starting to wake up to what the WEF is trying to do with cryptocurrency and other technologies intended to free rather than enslave the average person. There's no shortage of individuals and institutions starting to push back, including from the world of crypto and the next giants in social and market media, where freedom, liberty, financial sovereignty, and the entrepreneurial spirit are paramount. 

The few that think they have the right to control every living soul are trying their best to extinguish the entrepreneur and oppress their spirit.  A path to self-sovereignty is here with Markethive and brings a whole new level to empower people. Entrepreneurs are the lifeblood of liberty and freedom; liberty and freedom are a gift from God. In today’s world, Markethive is a blessing and unrivaled by any other platform out there today.

Reference: Coinbureau.com

Tim Moseley

Tornado Cash Whirlwind: Fed Prohibits U.S. Citizens From Using the Service.

Cryptocurrency mixing service Tornado Cash has been blacklisted in the U.S. Now, this has created a whirlwind in the crypto community. It is essential to understand exactly what's happening here as it will have important implications for the industry. However, this is not the first time the U.S. government has imposed a ban on crypto-related companies.

Tornado Cash's blacklisting sparks outrage in the crypto community as the U.S. Treasury sanctions the Ethereum hybrid protocol. The developers working on Tornado Cash and the log itself have been removed from the popular code hosting site Github. Vitalik Buterin has publicly admitted that he used the protocol in good faith, and his supporters have condemned censorship as unconstitutional. At the same time, someone started sending illicit Ethereum from Tornado Cash to a range of celebrities, from Jimmy Fallon to Jake Paul.

Tornado Cash is a firm that allows customers to conceal the origin of their cryptocurrency transactions. The U.S. Treasury Department has banned all Americans from using the website because it played a crucial role in laundering billions of dollars worth of cryptocurrencies. It is one of the main tools hackers use, most notably the $625 million breach of Axie Infinity's Ronin network by North Korea's Lazarus Group in March.

Before I go further, let's dive into the ecosystem of Tornado Cash to understand what the network is about and its functionalities.

Image source: Moralis Academy

What is Tornado Cash?

The blockchain transactions of Ethereum and Bitcoin, the two largest cryptocurrencies in the world today, are fully public and visible. Thanks to this high level of transparency, almost anyone can use their public address to track users' spending behavior. If they wish to disclose their transaction history, they only need user data for a single transaction that occurred.

Of course, the anonymous nature of public addresses doesn't necessarily mean they know users' personal information. Still, this leaves a lot to be desired for more privacy-conscious crypto users. Various privacy-conscious solutions and protocols have been developed to address the "problem" of transparent pseudonyms, but arguably none have been more successful than transaction mixers.

Transaction mixers essentially pool the funds of multiple users with their transactions: before each transaction reaches its intended destination, it is "shuffled." Once this shuffling process happens, it's complicated for anyone to track whose money went where and how much.

In practical use of transaction mixers, the developed protocol increases transaction anonymity by sending numerous random transactions across multiple addresses. However, these transactions can still be tracked in the public ledger, so this is not an entirely successful solution.

Tornado Cash aims to solve the privacy issues of transparent blockchains through private transactions. A fully decentralized, custody-free protocol increases transaction privacy by breaking the chain connection between sender and receiver addresses. To improve privacy, Tornado Cash uses smart contracts to accept ETH and other tokens from one address and allow them to be withdrawn at another.

These smart contracts work as a package, mixing all the deposited funds and generating a private key to prove that you have completed the deposit process. The sender can then use this private key to withdraw the deposited funds to any address at their chosen time. Tornado Cash has grown in popularity due to the rise of cryptocurrency events. It has also become a place to store stolen funds and a haven for many hackers.

Feds Blacklist Tornado Cash

The U.S. Treasury has added Ethereum mixing service to its list of Specially Designated Nationals. In a Press Release published by the U.S. Department of the Treasury, the body added the Tornado Cash website and a long list of Ethereum addresses to its list of Specially Designated Nationals and banned U.S. citizens from using the tool or doing business with the firm.

The announcement added that the state-backed North Korean hacking group Lazarus Group used Tornado Cash to launder more than $96 million after it hacked Harmony Bridge in June. It also said criminals used Tornado Cash to launder money, with $7.8 million stolen in the Nomad Bridge hack.

The Treasury Department's announcement lists some Ethereum addresses related to the Tornado Cash community, including addresses where people can donate money. According to Nansen researcher Andrew Thurman, the list of blocked addresses includes addresses that received funds from Gitcoin, an Ethereum-based platform used to fund open-source projects.

The Treasury Department said the measure was taken because criminals used Tornado Cash to launder money. In April, Tornado Cash said it used a tool from blockchain tracking firm Chainalysis to block U.S. government-approved addresses from using privacy apps. This is not good enough for the U.S. authorities. Brian E. Nelson, Treasury Undersecretary for Terrorism and Financial Intelligence, added:

"Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks."

Ethereum is the network behind the second-largest cryptocurrency by market capitalization, with thousands of tokens running on its blockchain. The native token ETH is trading at just under $1,897 and has a market cap of over $219 billion at the time of this writing.

As a result of this ban, all U.S. individuals and entities are prohibited from interacting with Tornado Cash or any Ethereum wallet addresses associated with the protocol. Anyone who does so faces criminal penalties.

Tornado Cash announced in July that it had fully open-sourced its user interface code as part of its goal of complete decentralization and transparency. Mixer's website includes a compliance tool that allows users to view the source of each transaction.

Image source: Coindesk

Sanctions may not prevent the operation of Tornado Cash itself. Co-founder Roman Semenov explained that the privacy service is designed to work without central control. When he and his team write and release code, the Decentralized Autonomous Organization (DAO) must approve any changes.

He told CoinDesk:

"If the DAO doesn't like what we are doing, then we will be forced to change our approach, and we cannot do it in a way that would satisfy the DAO's demands or expectations… The DAO has no way of forcing us to make those changes because our code base runs on a decentralized network where we don't have to talk to anyone else or ask for permission."

Is the U.S. Government in a Crypto War?

Given the ensuing avalanche of blacklists, does that mean Tornado Cash will only be used by criminals to launder money? Due to the transparency inherent in the blockchain, Tornado Cash offers many other less "illegal" use cases that are common when using traditional fiat currencies.

Recently, defenders of Tornado Cash have launched their offensive against the decision in various ways. First, they drew attention to a glaring logical flaw in the decision: anyone interacting with the Tornado Cash contract was illegal. Individual users cannot reject incoming transactions. Small amounts of cryptocurrency have been sent to well-known public wallet addresses – including those associated with Jimmy Fallon and Shaquille O'Neal – a concern that challenges the Treasury to take action to seize the entire Community.

Congress is deliberating a measure that permits the U.S. Treasury broad authority to prohibit or freeze certain digital assets, particularly if they relate to foreign banking institutions, transactions or if one or more types of accounts are of primary money laundering concern.

But the decision has drawn backlash from many in the crypto community, who see it as a government offense that runs counter to its core values ​​of privacy and autonomy. Crypto attorney Collins Belton tweeted:

"arguably the most significant legal action that has occurred in crypto" and warned that it could produce "absolutely gargantuan ripple effects."

However, this action also suggests that OFAC sanctions, which are intended to more broadly push the introduction of cryptocurrencies into the world's financial system as a way to make payments without going through a trusted third-party financial institution should ultimately bypass it.

A bigger fight may be on the horizon: some prominent crypto lawyers have already begun to float the idea of ​​challenging the decision on constitutional grounds. "Banning software publication is banning speech," said Peter Van Valkenburgh, director of research at Coin Center, at a cryptocurrency conference in Las Vegas.

He also said:

"Even laws that unreasonably chill speech are constitutionally suspect and can be challenged even before enforcement."

The sanctions were particularly notable because they were placed not on a person or particular digital wallet address but on the use of a smart contract protocol, which in the most basic form is just information. The precedent set by these actions is not favorable for open source software development in the sector.

Bottom Line

The Feds’ actions shocked the crypto community just as it was starting to relax and enjoy a summer rally led by Ethereum and the promise of its coming upgrade, The Merge.

The news that the U.S. Treasury Department has banned all Americans from using Tornado Cash crypto-mixing service or any Ethereum wallet addresses tied to the protocol after North Korean hackers allegedly used it to launder stolen crypto funds has once again heightened doubts on the stability of the whole sector.

This news highlights the cryptocurrency market's fragility and the regulators' ability to crack down on service providers for various reasons, particularly national security. While general market conditions appear to be slightly improving, despite contrasting economic data, this news casts a shadow over the cryptocurrency market. It may discourage further investments from people fearing their coin may be the next one to be targeted.

Tim Moseley