Recall that non-custodial fully decentralized cryptocurrency tumbler that runs on Ethereum virtual machine-compatible networks, Tornado cash was banned last month by the U.S government to prevent hacking, and other cryptocurrencies crimes.
Recently, a group of irate crypto investors have sued the U.S treasury department to block government sanctions that bar Americans from Tornado Cash.
These investors filed a lawsuit in the federal court in the Western District of Texas, which is funded by cryptocurrency exchange Coinbase, accusing the U.S government over its increasingly stringent regulation of digital assets.
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The suit argues that the Treasury Department overstepped its legal authority by banning Tornado Cash which violates their rights and jeopardizes their capacity to conduct free and private financial transactions.
Following these claims, the U.S Treasury Department did not immediately respond. The department had previously announced last month that it placed Tornado cash on a backlist to prevent hacking and money-laundering which the platform has been reportedly known for.
The tumbler was flagged as a money laundering platform, with rapidly growing incidents across Ethereum and Binance Smart Chain on a consistent uptrend. It was reported that a substantial magnitude of the illicit funds have lost their trail after going through the mixer.
According to a report by blockchain security platform SlowMist, 74.6% of stolen funds (or nearly 300,160 ETH) on the Ethereum network were transferred to the controversial cryptocurrency tumbler during the first half of 2022.
This prompted angry reactions from Industry groups who argued that the crackdown would cut off access to a critical tool for preserving privacy.
However, the U.S treasury department, stated that the so-called cryptocurrency mixer, Tornado Cash is designed to make it harder for law enforcement officials and other observers to track crypto transactions.
It revealed that every time two people exchange digital currency, the transaction is recorded on a public ledger called a blockchain, which anyone can analyze to trace the movement of funds.
But when people route their cryptocurrency through the mixer, streams of funds are combined to obscure where the money originated from, which makes it a preferred tool for criminals to perpetuate crime.
This year, it was reported that a North Korean-backed hacking group used Tornado Cash to launder more than $455 million, according to the U.S Treasury Department. In total, the department has said, the service has helped criminals launder $7 billion in virtual currency.
Crypto supporters have issued a rebuttal to these claims, stating that mixers are a neutral tool, which is often used by those who simply want to protect their privacy.
They argued that unlike some other crypto privacy services, Tornado Cash is not a traditional company run by a team of executives. It is a set of “smart contracts” pieces of code that operate independently of any entity.
“It’s important that the law’s distinction between people and code be respected,” said Paul Grewal, Coinbase’s chief legal officer. “If that disrespect is allowed to stand, there could be all sorts of other ways in which statutes are twisted and bent to apply to crypto in ways that they shouldn’t be.”