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Cryptocurrencies are highly criticized by financial watchdogs and governments for potential risk for money laundering, and websites like Tornado Cash are fueling this allegation.
While it’s true that the paper-money is still the favorite means for money laundering purposes. However, cryptocurrencies have made a bad reputation among the global regulatory authorities and government over the past years. A number of high-profile cryptocurrency frauds in recent weeks have uncovered the tools and approaches that hackers use to hide their tracks. The Tornado Cash DeFi mixing services has become crucial among money launderers as it leaves an insignificant trail for cryptocurrency transactions, making it quite hard for the regulatory bodies to detect suspicious activities.
According to the local reports, the rising popularity of crypto mixing services is fuelling money laundering activities even though they have not been marked as illegal by global regulators.
Crypto mixers have become mainstream since centralized digital currency exchanges, on governments notice, began to demand to practice the know your customer (KYC) procedure before onboarding their customers. Tornado Cash works by enabling clients to deposit ERC-20 tokens into the platform’s smart contract along with a hash of note that identifies the cryptocurrency transactions. Once the transaction is made, the customers need to submit proof of a valid key to the note to the smart contract which then allows clients to withdraw the money. Thus, this reduces the transparency between the transactions, providing enough room to launder illicit funds.
According to cryptocurrency experts cited by Yahoo! Finance, crypto mixing services are not illegal despite being a top choice for fraudsters and money launderers.
Victor Fang, CEO, and founder of AnChain, said: “Privacy is not criminal but criminals are seeking these privacy solutions. This is the tip of the iceberg, the beginning of the future we’re going to see play out.”
However, the problem lies here, governments and financial watchdogs blame cryptocurrencies for money laundering, not the group of criminals that are taking advantage of digital currencies through mixers. According to the United Nations, roughly 2-5% of the $2 trillion in global growth gets laundered in fiat currencies each year. According to a recent Chainalysis report, around $8.6 billion per year gets laundered using cryptocurrencies, barely a fraction of the $40-$100 billion in cash equivalents.
Thus, the above-cited statistics are clear, paper-based money is still a criminal’s top priority when it comes to money laundering, but the anti-crypto governments and regulatory bodies will find new ways to present cryptocurrencies as potential threats to financial institutions and individuals.