The U.S. Department of Treasury banned Americans from using Tornado Cash due to its links to the proceeds of cybercrimes.
The Under Secretary of the Treasury for Terrorism and Financial Intelligence said in a statement that Tornado Cash has failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis.
Blending someone's token with a pool of other people's assets on the platform is a way of camouflaging trail of funds. The identities of the people involved in transactions are hidden by them.
While Tornado Cash is used by some people just as a legitimate way to protect their privacy, the government says it fosters other illegal activities.
The Treasury Department said that virtual currency mixers are a threat.
There were a number of high-profile heists this year, including the $615 million theft of token from Ronin and the $100 million attack on U.S. startupHarmony. Both were linked with the Lazarus Group.
The entire $100 million stolen from the Harmony bridge in June was laundered through Tornado Cash, according to a report by Elliptic.
More than $7 billion worth of virtual currency has been laundered through Tornado Cash, according to the U.S. Treasury. The total value of the assets that have been sent is referred to.
To identify the source of the funds, some tools have managed to mix the funds. Elliptic says it was able to trace the stolen money to a number of new ether wallet.
The sanctions against Tornado Cash are similar to those imposed on another service.
The Secretary of State said in a statement on Monday that the United States will continue to pursue actions against those who help criminals.
The Office of Foreign Assets Control has added Tornado Cash and its associated wallet addresses to its list of Specially Designated Nationals. Any person who interacts with these wallet addresses could face criminal penalties for their actions.
Unless authorized by a general or specific license issued by OFAC, all transactions by U.S. persons within or transiting the United States that involve any property or interests in property of designated or otherwise blocked persons are prohibited.
According to the coin center, it may be difficult for the government to enforce such a move. There is no one behind the use of Tornado Cash.
The action appears to be the sanction of a tool that is neutral in character and that can be put to good or bad uses.
CNBC contributors contributed to the report.
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