LWN: Comments on "Tornado Cash and collateral damage"

Tornado Cash and collateral damage

poruid — Tue, 22 Nov 2022 15:09:18 +0000

Today the Dutch prosecutor has decided to prolonged the detention on remand for P.

Tornado Cash and collateral damage

nix — Tue, 06 Sep 2022 08:00:34 +0000

Fire has been a core human technology for at least hundreds of thousands of years. There have been *multiple* ice ages in that timespan. Your numbers don't add up.

(Population growth might explain it, except that population growth was caused by agriculture, and agriculture didn't get started until after the current interglacial started. So that's in the wrong order too.)

Tornado Cash and collateral damage

Wol — Wed, 31 Aug 2022 15:26:23 +0000

Thing is, we don't really know ... but we do know land clearance is a potent source of greenhouse gases. And the regrowth of the Amazon after South America was near enough wiped out (I keep wanting to write "decimated", but it was the inverse of that - about one person in ten survived ...) has certainly been blamed for it getting cold.

And while I doubt we started the current retreat of the ice age, the discovery of fire probably played a potent - if slow - role in hastening it. Pretty much every civilisation has stories of a great flood, which really happened about 10,000 years ago, and even that long ago we were more than capable of modifying the environment in potent and destructive ways ...

Cheers,
Wol

Tornado Cash and collateral damage

paulj — Wed, 31 Aug 2022 12:51:28 +0000

Deforestation occurred before the 17th C, yes. Used for construction (inc. ships) and charcoal. The coal age came along in great part cause high-energy (for the age) societies had used up so much forest. I don't know what impact that had on climate, and wouldn't doubt there was /some/ effect - but it was minimal compared to the effects of the (latter stages of...) coal age and (esp.) oil-age of the last 150 years.

My understanding was that solar insolation was a (one?) reason for cooling in the 17th C.

Tornado Cash and collateral damage

Wol — Wed, 31 Aug 2022 12:27:19 +0000

> However, the first sentence is just wrong. The cause of AGW is industrialisation, and the burning of ancient, non-renewable hydrocarbons for energy. First the coal-age early-industrialisation from the 17th C onwards in Europe, and then the oil-driven hyper-industrialisation of the last 100 years. Humans have had (increasingly) complex and abstract mechanisms for transferring wealth for thousands of years before then, without causing warming in any appreciable way, in contrast to the last 150 odd years.

You're a couple of hundred years too late AT LEAST, if not a lot more ... I'm not sure of the exact details but (a) the Amazon Rain Forest (what's left of it) is nowhere near as old as most people think - before 1500 huge areas of it had been cleared, and much of it post-dates then. When the Common Cold and friends wiped out the AmerIndians, the forest regrew, and has been blamed for the mini iceage that followed in the 1700s - when the Thames froze over and suchlike things.

While I hesitate to suggest the human impact goes back that far, it is more than possible that the spread of farming 10,000 years ago has had a not inconsiderable hand in global warning ever since then! If not even before that!

Cheers,
Wol

Tornado Cash and collateral damage

paulj — Wed, 31 Aug 2022 12:15:46 +0000

As a thought experiment, one interpretation of your argument - that abstract systems of wealth transfer caused AGW - is that to fix AGW we need to remove financial abstractions in our society. Which: a) seems like it would require a massive re-engineering of the financial systems of developed societies; b) Doesn't really seem to address the problem - there's no obvious reason why this would address AGW, why wouldn't people just keep buying oil? People do so every day, buying petrol and diesel for their cars... a direct financial transaction.

Tornado Cash and collateral damage

paulj — Wed, 31 Aug 2022 12:11:43 +0000

I appreciate your comment and there are points that are good food for thought - thanks.

However, the first sentence is just wrong. The cause of AGW is industrialisation, and the burning of ancient, non-renewable hydrocarbons for energy. First the coal-age early-industrialisation from the 17th C onwards in Europe, and then the oil-driven hyper-industrialisation of the last 100 years. Humans have had (increasingly) complex and abstract mechanisms for transferring wealth for thousands of years before then, without causing warming in any appreciable way, in contrast to the last 150 odd years.

The problem is we have fuelled extra-ordinary developments and advances in our way of living, along with an explosion in population, by mining the earth, and burning hundreds of millions of years worth of concentrated solar energy in a few hundred years. Everything we expect and depend on now is steeped in oil. Even our agriculture and food depends heavily on oil: fertiliser, machinery, supply lines, etc.

The root cause is energy. And the only fix is replacing HCs with an energy source that is capable of reliably producing _at least_ the *same* amount of energy, for _less_ cost.

Tornado Cash and collateral damage

nim-nim — Tue, 30 Aug 2022 16:56:52 +0000

Anthropogenic climate change has been caused by building a system where increasingly complex mechanisms are used to dissociate acts from their consequences and camouflage who’s accountable for what. crypto-mining is the latest attempt to achieve this end.

Historically, wealth was not secret. The Pharaohs re-attributed tracts of land after each flood. Local barons knew pretty well how many “fires” they could tax (and kings how much each baron could be made to contribute). Those taxes paid for the commons that made our civilization possible.

There is nothing beautiful in a society where wealth is hidden, just a bunch of greedy parasites hoping someone else will toil to fix the environment they live in while they turn it anonymously in a shithole. A bunch of oligarchs pissing money away in tax paradises is already bad enough without generalising this idiocy.

Wealth is power and power is already corrupting enough by itself without being hidden and dissociated from accountability.

Tornado Cash and collateral damage

sammythesnake — Tue, 30 Aug 2022 01:20:26 +0000

Getting drastically off-topic, but actually banks don't really have a "big bag of money", almost all of their assets are actually debts owed to them.

To make that already squicky fact more disturbing, the money lent out generally never existed in the first place. Providing the value of the debt plus collateral (i.e. the back that hand you a mortgage now owns your house) covers the "money" given out (plus the costs of recovering it), the books balance without the money existing in the first place.

There are regulatory controls that require the banks to have some *real* money deposited at Central Banks but at multipliers that make it almost meaningless, even post 2008 :-(

Tornado Cash and collateral damage

sammythesnake — Mon, 29 Aug 2022 19:38:54 +0000

In most cases laws criminalise *uses* of such things as are under restrictions. The are certainly things where *possession* is a crime (e.g. various weapons or drugs, depending on the jurisdiction), but the "uses" laws outweigh them somewhat.

Even many laws restricting possession aren't absolute, allowing it if certain requirements are met (e.g. requirements on storage of firearms or ammunition, or valid prescription for drugs etc)

In any case, though, there is necessarily a responsible party to be held criminally liable in the event of overstepping the bounds. You can't imprison or fine a knife/gun/doobie, you need a person to subject to consequences.

There are laws that restrict doing things you can/should "reasonably suspect" enable illegal actions by another party - essentially making you liable for others' actions with a defense of due diligence.

That kind of restriction might work for tornado by applying only to the "money in" part if you could ensure legitimacy of the money going in and somehow apply whatever taxation is appropriate while allowing the egress of funds to be anonymous...

Making it illegal to use for otherwise legal purposes is overreach (though that's hardly unprecedented, c.f. the DMCA)

Making it illegal to possess is near pointless given how difficult it would be to enforce such a law (defining the software in question, proving that an encrypted drive contains it, even proving that a hard drive is formatted if certain encryption methods are used!)

Of course, legislators do stupid things five times by breakfast...

Tornado Cash and collateral damage

nybble41 — Fri, 26 Aug 2022 03:12:15 +0000

> At some point, the ETH* has to turn into USD or another fiat, and re-enter the traditional financial system.

It really doesn't. Goods and services can be bought directly with ETH or other cryptocurrencies without going through USD or any other fiat. The seller in that transaction isn't going to care where the crypto came from any more than they would care where you got your USD in a cash transaction. In principle it could just keep circulating as crypto indefinitely, given the right supply chain, but if they do trade it for fiat, or deposit it with some centralized exchange, the only transaction they need to demonstrate is that they received it in exchange for whatever good or service they sold you.

I'm not sure why you bring up structuring here. No one suggested making small deposits over time to avoid going over the reporting threshold. A decent mixer enforces small uniform denominations for *withdrawals*, which is an altogether different matter. Metaphorically speaking, someone deposits (for example) $15,000 into the mixer in exchange for a stack of bearer bonds (blinded signatures) which are later redeemed for a stack of 750 $20 bills. Those bills can be deposited all at once with the bank, if you so choose, filing whatever AML paperwork is legally required in the process. No structuring is involved. The bank will most likely ask where you got the money, but beyond your word on that subject there is no paper trail. The mixer has no way of knowing which particular deposit led to the issue of those particular bearer bonds; it just recognizes its own signature on them and the fact that they hadn't already been redeemed.

Retaining a lawyer

hummassa — Thu, 25 Aug 2022 11:30:58 +0000

Are you trying to retain a lawyer "just because"?

Down here you can walk into a lawyer's office, ask for a consultation (for a fee, obviously) and, if said lawyer tells that you have a case to complain or that you need legal defense, *then* you retain said lawyer, and in the documents you file together with the case or defense you must file the "letter of attorney" that specifies the scope of the retention (just for this case, for any related legal case, for any related case from now on etc).

Tornado Cash and collateral damage

Cyberax — Thu, 25 Aug 2022 10:57:45 +0000

Some time ago I was curious about retaining a lawyer. Turns out that almost no "regular" law firms do that. The movie-style "I need to call my lawyer" is not even available for merely affluent, you need to be truly rich.

The closest thing is LegalShield that sells an "insurance-style" subsciption.

Tornado Cash and collateral damage

brunowolff — Thu, 25 Aug 2022 07:08:14 +0000

I remember reading reading a long time ago about old money knowing you want to pay your lawyer a retainer in advance so that they will defend you even if your assets are frozen. This is an option generally only available to the wealthy though.

Tornado Cash and collateral damage

gjditchfield — Wed, 24 Aug 2022 18:40:31 +0000

Noted here for posterity: the EFF has a clear blog post, "Code, Speech, and the Tornado Cash Mixer". The OFAC sanctions and subsequent commentary muddle together several distinct concepts.

Meanwhile, the OFAC press release quoted above refers to “Tornado Cash” as both an anonymity-enhancing technology and a sanctioned entity. “Tornado Cash” is also the name of: the underlying open source project that developed and published the code on GitHub; the name of this autonomous mixer software that resides as a smart contract (application) running on the Ethereum network; the URL of the tornado.cash website (listed by name on the SDN); and could be considered a name of an entity consisting of some set of people involved with the mixer. OFAC did not identify or list any people involved with the mixer as sanctioned by name. While the OFAC listing is ambiguous, Coin Center has drilled down on what it believes is and is not a sanctionable entity in the Tornado Cash situation, distinguishing between an entity and the software itself.

Tornado Cash and collateral damage

joshwb — Wed, 24 Aug 2022 18:26:23 +0000

To my ears, this topic has echoes of the gun debate in the US (unfortunately). Blame the user not the tool, sort of thing. It all goes to the heart of the safety vs. freedom compromise life requires humans to make. The US constitution affords a right to create and share code in its first amendment. It will be interesting to see if the courts place the code in question here into the category of inciting speech which they can limit. Not sure how that could be done but it doesn't seem impossible. The likely outcome though is that these guys were legitimately laundering cash and were rightfully taken down.

Tornado Cash and collateral damage

Wol — Tue, 23 Aug 2022 14:58:49 +0000

Add the standard practice of American prosecutors - freeze the bank accounts of defendants so they can't afford a proper defence ...

The amount of NORMAL American prosecutorial behaviour that would be considered a perversion of Justice elsewhere is just astounding...

Cheers,
Wol

Tornado Cash and collateral damage

paulj — Tue, 23 Aug 2022 14:33:07 +0000

Very interesting, thanks!

Tornado Cash and collateral damage

intelfx — Tue, 23 Aug 2022 13:57:28 +0000

> I suggested they do something to stop nuclear proliferation, not "some sanctions."

And yes, if they want to do something to stop nuclear proliferation, then maybe the US government should start with disarming _itself_ — last I checked the US wasn't a party to the Nuclear Weapon Ban Treaty. Otherwise it's just political power play.

Tornado Cash and collateral damage

intelfx — Tue, 23 Aug 2022 13:51:19 +0000

> Lol, that isn't what happened. It wasn't a bug in Ethereum, it was a bug in a specific smart contract and the draining of that contract was completely legitimate use of the network and Ethereum

Yes, this is less ethically justifiable, but I still see a pretty clear difference between "exploiting bugs in the software" (be it Ethereum itself or certain smart-contracts on the network) and "moving money in directions that _some_ governments aren't exactly pleased with".

Because the second part is one of the main reasons why blockchain was invented, after all.

Tornado Cash and collateral damage

intelfx — Tue, 23 Aug 2022 13:49:28 +0000

> Because it's the law.

Which exactly "the law" are we talking about?

...Ah yes, there is only one law on Earth that does not concern itself with a _jurisdiction_. and thinks that it applies anywhere on the planet: the US law. Of course, how could I forget.

Anyway, why would the Ethereum project concern itself with the US law?

Problem with interest rates as a control

farnz — Tue, 23 Aug 2022 12:38:26 +0000

And the difficulty is that interest rates only really affect the demand side of the supply + demand curves. You can use interest rates to adjust demand to keep inflation down if the root cause of inflation is excessive demand - in other words, people buying more than they absolutely need. In at least one economic model, this is the only cause of inflation.

The situation gets difficult if you have supply shortages, such that people can't afford a full set of essentials; interest rates allow you to influence demand, but there are some things that people will pay everything they have to keep getting (shelter, food, water). If these things are in restricted supply, then central banks are stuffed - they have no tools for affecting supply side, and if that's where inflation is coming from, keeping it in check is outside their competence.

Just the first step

Wol — Tue, 23 Aug 2022 11:48:09 +0000

Just look at the Bank of England raising interest rates to drive down inflation. Given that the number of households struggling to afford mortgage / rent / utility / food payments is rising sharply, everybody's screaming "what do you think you're doing!"

The one good side to this is that house price inflation has remained roughly stable. And given that general inflation has just about overtaken house price inflation, that means that real house prices have stopped rising. And if house price inflation slows sharply (there'll be horrendous screams if it goes into reverse, even if that is a good thing), then at least it means homes will become more affordable for those who are legally allowed to get a loan !!!

(The government, in its wisdom, has decreed that even if you are PAYING say £1100 pm in rent, that's not proof you can can afford an £800 pm mortgage, therefore you can't have one ... ABSOLUTELY CRAZY!)

Cheers,
Wol

Tornado Cash and collateral damage

kleptog — Tue, 23 Aug 2022 11:08:24 +0000

> I do think there is huge social value in permission-less (which need not mean /no/ accountability), universal, digital ledger technology

But for such a system to succeed it has to be more useful in the general case. In general a centralised system is more efficient and flexible than a distributed one (with the exception of embarrassingly parallel problems). I agree the most useful thing you can do for much of the developing world is getting them a working banking system. A lot of progress has been made, where basically your mobile phone acts as a wallet for payments. It's also amazing how quickly you get used to instant bank transfers. Any totally decentralised system is going to have a hard time beating that.

The digital currencies being looked into by central banks are interesting. You say governments have an interest in tracing everything, but central banks really don't: they just want to numbers to add up. So they've got themselves a number of requirements relating to privacy and performance, but the ECB explicitly also wants to prevent the digital currency being used as a store of value. It will certainly be interesting what solutions they come up with.

Tornado Cash and collateral damage

anselm — Tue, 23 Aug 2022 10:32:49 +0000

Smart contract block-chains like Ethereum also had a problem with validators colluding with others to front-run transactions in the mempool. I.e., run software to scan the pending pool of unvalidated transactions and then inject their own transactions immediately before or after a target tx to extract value via arbitrage - validate those blocks before anyone else and... profit. The answer developed to this has been to provide programmatic access to /all/, on an equal basis, to the ability to run such code on the pending pool in (at least some) validators.

David Gerard calls this “always declare your worst bugs are features, actually.”

There's an interesting new paper which analyses how Ethereum validators (miners) can, and do, profit from front-running, back-running, “sandwich attacks” and similar shenanigans. If you want to protect your transactions from the attention of “bots” which scan the “memory pool” of pending transactions for opportunities to front-run, the thing to do is to avoid the memory pool altogether and send transactions privately to miners instead, but that then gives these miners the opportunity to tweak things for side profits. Over a period of 12 days in February 2022, the authors' analysis demonstrated that 2,159 ETH (the equivalent of approximately 6.4 million USD) was pocketed by miners, mostly through sandwich attacks on privately-sent transactions. The analysis also showed that during the time period under consideration there were multiple opportunities for “time-bandit attacks”, where sufficiently powerful miners could, in theory, retroactively “re-mine” previously-validated blocks in order to skim off the mining fees; the authors say that this hasn't happened during their research but are reasonably positive that it will in the future. This is of considerable concern because it would jeopardise the stability of Ethereum.

Tornado Cash and collateral damage

wahern — Tue, 23 Aug 2022 05:22:17 +0000

Wei Dai's PipeNet protocol may have pre-dated or at least been contemporaneous with the work of that other group. See, e.g., https://cryptome.org/jya/pipenet.htm But I think the Onion Routing protocol was published in a journal before a full description of PipeNet became available online.

But beyond that, AFAIU TOR itself saw usage by a certain [other] U.S. intelligence agencies, which is why TOR never saw much opposition from the U.S. government--one hand blunted the other.

Just the first step

NYKevin — Mon, 22 Aug 2022 22:57:46 +0000

>> 2. If they are trying to keep the inflation rate steady then they're doing a poor job.
>
> To be fair, they do not have a lot of tools at their disposal, only being able to influence interest rates.

Also, if they act too aggressively, they could cause a recession. If they don't act aggressively enough, they won't accomplish anything. And they have to worry about both consumer expectations and monetary reality, because both those things affect inflation to a significant degree. It's a hard problem.

Tornado Cash and collateral damage

paulj — Mon, 22 Aug 2022 16:20:46 +0000

More detail here - and wrt regulatory environment it's worth bearing in mind that security agencies in western Europe have almost unchecked power (esp. back then): https://yarchive.net/phone/gsmcipher.html - the control of crypto was generally done via their vague, sweeping powers; rather than via more explicit legislation and regulation as was required in the USA.

Tornado Cash and collateral damage

paulj — Mon, 22 Aug 2022 16:15:53 +0000

It was illegal to export, yes. In principle this meant companies /could/ have a 'domestic' version of software with proper crypto and a crippled 'export' version. In practice this meant that any 'free' (beer) software (e.g. Netscape) that was made available on the Internet had to be in the crippled form.

And elsewhere the GSM A5/2 cryptography was deliberately weakened too. Maybe not direct laws, but still at the behest of European states and their intel agencies - I'd assume in consultation with the NSA and US State dept.

Tornado Cash and collateral damage

immibis — Mon, 22 Aug 2022 15:50:51 +0000

Wasn't crypto only declared illegal to export? I thought USA citizens were allowed to use it.

Tornado Cash and collateral damage

anselm — Mon, 22 Aug 2022 15:44:10 +0000

I think you're likely referring to the paper about wash trading on CEXes. These do not result in block-chain transactions. That's basically an artefact of collusion on those trading platforms, typically with the CEX or at least insiders on the CEX. As noted, this is already regulated and illegal. It should be cracked down.

The problem with this (from the POV of a cryptocurrency enthusiast) is that the perceived “value” of the cryptocurrency is based on these transactions (on the blockchain or not) – people say that, e.g. “1 Bitcoin is worth $X” according to the numbers that cryptocurrency exchanges publish based on the transactions that occurred on that exchange (the fact that these transactions very often involve neither the blockchain nor actual dollars is conveniently glossed over; instead, people cite even more ridiculous measures like the “market capitalisation” of a cryptocurrency, which is just the number of mined coins times the fictitious dollar value per coin). Wash trading is used to pump up that “value” artificially by feigning interest in buying and selling crypto, when the actual (non-wash-trading) volume is only a small fraction of that seen on an exchange, and would probably happen at much lower prices.

Regulators like the SEC are gradually moving towards classifying cryptocurrencies as securities rather than property, which brings them within the scope of existing securities legislation that outlaws wash trading. We'll have to wait and see what that does to the exchanges.

Tornado Cash and collateral damage

paulj — Mon, 22 Aug 2022 15:20:40 +0000

(Least, the alternative of some centralised CBDC - where access to that system is denied based on extra-judicial decisions by private corporates, based on their /fear/ of whatever some vague regulation means + and also sometimes denied by behind-the-scenes state pressure on said entities - is a scenario that is ripe for state abuse; and will be abused to punish unpopular minority interests again and again; and eventually worse).

Tornado Cash and collateral damage

paulj — Mon, 22 Aug 2022 15:17:12 +0000

Completely agree the last couple of years has been fuelled by a combination of tulip-mania, with a fair number of "find a bigger sucker" hucksters diving in to profit from that.

I do think there is huge social value in permission-less (which need not mean /no/ accountability), universal, digital ledger technology (which basically means a block-chain with a consensus mechanism of some sort to randomise validation of new blocks). I think it's a good thing if the more crazy retail froth has been blown off, and the technology can mature further without that.

Just the first step

nilsmeyer — Mon, 22 Aug 2022 15:16:06 +0000

> 1. My understanding is that the Federal Reserve is *not* part of the government; only an *intermediary* of some form is appointed by the President.

The chair of the Federal reserve is nominated by the President (of the United States) and confirmed by the Senate. It's also the procedure for the members of the board, one of whom is normally selected the chair.

The structure of the Federal Reserve is a bit odd (compared to other federal agencies) in that it is comprised of regional federal reserve banks which are corporations (however chartered by the government). Banks participating in the federal reserve system can buy shares in those banks, it's important to note that these shares come without voting rights. Those banks are also required to bid at treasury auctions.

This is often conflated into the conspiracy theory that the federal reserve system is a private corporation run for the benefit of a cabal of bankers - this is often laced with a heaping of antisemitism.

> 2. If they are trying to keep the inflation rate steady then they're doing a poor job.

To be fair, they do not have a lot of tools at their disposal, only being able to influence interest rates.

Tornado Cash and collateral damage

anselm — Mon, 22 Aug 2022 15:05:01 +0000

I'm not convinced that crypto-“currencies” will ever go back to where they were 2 years ago or so. Crypto is based on the “find a bigger sucker than yourself” principle, and while the world is running out of bigger suckers, the regulators are slowly but steadily closing in.

Tornado Cash and collateral damage

paulj — Mon, 22 Aug 2022 12:30:42 +0000

I think you're likely referring to the paper about wash trading on CEXes. These do not result in block-chain transactions. That's basically an artefact of collusion on those trading platforms, typically with the CEX or at least insiders on the CEX.

As noted, this is already regulated and illegal. It should be cracked down.

Smart contract block-chains like Ethereum also had a problem with validators colluding with others to front-run transactions in the mempool. I.e., run software to scan the pending pool of unvalidated transactions and then inject their own transactions immediately before or after a target tx to extract value via arbitrage - validate those blocks before anyone else and... profit. The answer developed to this has been to provide programmatic access to /all/, on an equal basis, to the ability to run such code on the pending pool in (at least some) validators.

Tornado Cash and collateral damage

paulj — Mon, 22 Aug 2022 12:20:29 +0000

This will work as well as when RSA was declared illegal.

Tornado Cash and collateral damage

paulj — Mon, 22 Aug 2022 10:06:30 +0000

You need strong social ties to operate in such a place. There are still rules though, funnily enough.

Tornado Cash and collateral damage

paulj — Mon, 22 Aug 2022 10:04:15 +0000

You cherry-picked the window of a year, go back further. Cut out the super-frothy last 2 years and it's >+50%.

Agree it is extremely volatile and any one using it as a short to mid-term hedge is unwise. Longer term, for a number of people is a worth-while hedge (but _only_ with money they can afford to lose).

Tornado Cash and collateral damage

geert — Mon, 22 Aug 2022 08:51:28 +0000

Guess who started with the development of TOR? ;-)