It hurts to see what happened to Tornado Cash, especially after the news about one of its suspected developers being arrested. Imagine building a neutral product that lets people have some privacy on-chain and getting in jail for that.

One of our subscribers brought up the compliance module. If you forgot or didn’t know, Tornado Cash has the functionality to reveal sources of funds to help regular folks prove to companies that they are not criminals. But OFAC didn’t care about the compliance module. It just wanted to stop the protocol.

Technically, the service is immutable. But, everything that connects to it or lets people discover it is mutable. That’s what the regulators are after: GitHub, Telegram, developers. 

Even though we outlined such a risk in the report, it’s a bad precedent for the entire industry. Similar instances of the government fighting digital money were related to centralized setups. Now the government attacked immutable code, and the attack caused substantial damage. Blockchain couldn’t protect the project.

Privacy is a basic human right, and we must strive for it. Illicit activities will happen anyway, especially if we speak about cash. That doesn’t mean privacy means illicit activity.

Tornado Cash will continue chugging along. After all, it’s just a set of smart contracts. People who don’t care about moving money to, say, Coinbase or withdrawing through a U.S.-based bank will continue using it.

Still, given the overall concerns about money that touched Tornado Cash, disruptions in the project’s accessibility, and potential persecutions of the team members, the project will have hard times ahead. 

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Disclosure: The author of this newsletter holds ETH. Crypto Briefing and members of the research team hold some of the Pick of the Month coins mentioned in the table above. Read our trading policy to see how SIMETRI protects its members against insider trading.