2 years ago
Policy Advisor Patrick Hansen posted his thoughts connected the regulatory hazard present facing the Bitcoin Lightning Network pursuing sanctions against crypto mixer Tornado Cash.
U.S. authorities added Tornado Cash to the Office of Foreign Assets Control (OFAC) sanctions database connected August 8. The Treasury Department claimed much than $7 cardinal of illicit funds person been laundered done the protocol since 2019.
Since then, Tornado Cash addresses person been blacklisted, the developers person been booted from Github, and the website has been taken down. The squad announced the shuttering of operations connected August 13.
The saga has brought to airy questions astir idiosyncratic privacies and the remit of authorities overseeing the crypto space. More so, considering Tornado Cash is simply a neutral instrumentality comprised of codification and not a sanctionable “person.”
Bitcoin Lightning successful information of being flagged arsenic precocious risk
Commenting connected this, Hansen pointed retired that custodial Bitcoin Lightning services volition beryllium forced to comply with the Financial Action Task Force (FATF) Travel Rule. This states work providers indispensable stock applicable originator and beneficiary accusation alongside crypto transactions to combat wealth laundering and violent financing.
“VASPs and different fiscal institutions to stock applicable originator and beneficiary accusation alongside virtual plus transactions, truthful helping to forestall transgression and violent misuse.”
However, Hansen said the implementation of this would beryllium hard for Lightning nodes to transportation retired successful practice. The contented is further compounded by nodes perchance being classified arsenic regulated outgo work providers, which whitethorn necessitate further requirements specified arsenic lawsuit authentication.
The contented is that flows done the Lightning Network whitethorn beryllium seen arsenic precocious hazard nether existing anti-money laundering frameworks. But policymakers person yet to code wherever they basal connected the matter.
Is determination anticipation for privateness aft the Tornado Cash saga?
Regarding governmental overreach, the CEO of Aztec Network (an Ethereum-based privateness layer,) Zac Williamson, said helium remains optimistic that Web3 exertion tin assistance support idiosyncratic privacies.
“Despite the acheronian circumstances of the present, determination are grounds to beryllium optimistic astir the aboriginal for web3.“
Williamson said it is imaginable that Web3 networks tin adhere to the goals of regulators and inactive support idiosyncratic privateness “but volition not conform to existing regulatory structures.”
He explained that the supra script tin beryllium if regulators people the exertion layer, specified arsenic ramps and wallets, alternatively of going aft the web level. This was further clarified utilizing the analogy of net work providers not being held accountable for the “data successful their cables.”
“There is simply a spot for regularisation successful web3. It is not astatine the web level. It is astatine the exertion level; companies and entities that pat into web3 to supply services to users and businesses. e.g. cryptocurrency on/off ramps and hosted wallets.“
Despite the heavy-handed attack taken against Tornado Cash, Williamson expressed assurance that regulators volition gradually judge and legislate for fiscal privacy. After all, a continuation down the existent way volition lone pb to innovation going elsewhere.
The station Bitcoin Lightning Network astatine regulatory hazard aft Tornado Cash saga appeared archetypal connected CryptoSlate.
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