A short reminder of the powerfulness of the US Government 🇺🇸🌪; NFTs and metaverse-related cryptocurrencies are crashing. Here's why💡; Bitcoin sinks on Fed's hawkish stance. What’s next? 🤔
Good Morning FinTech, 29 August
Good day Everyone,
And happy Monday! As someone famously said, there’s no better way to start the new week than by reading Linas’s Newsletter… Ok, it was me again 😎 But you will have to agree with me after today’s issue which is heavily focused on macro environment and crypto. We’re going to have a short reminder of the powerfulness of the US Government (& maybe the fragility of tech protocols?), NFTs and metaverse-related cryptocurrencies that are crashing (& learn why), and Bitcoin that sunk on Fed's hawkish stance (so what’s next?). Let’s jump straight into the fascinating stuff:
A short reminder of the powerfulness of the US Government 🇺🇸🌪
A refresh ♻️ Earlier this month, something unprecedented happened - the Office of Foreign Asset Control, a sanctions watchdog operating under the auspices of the U.S. Treasury Department, sanctioned a decentralized protocol Tornado Cash.
Since the story is still developing and lots of things are happening as we speak, I purposefully stayed away from it. Yet, it now appears too important to be ignored, so let’s take a brief look at it and why it matters.
The USP 🥊 Tornado Cash is a decentralized non-custodial privacy solution built on the Ethereum blockchain-based zero-knowledge proofs. It enables users to break links in on-chain transactions and enhance transaction privacy between deposit and withdrawal addresses. In other words, it’s a coin mixer that makes it difficult to track a user’s identity.
But why sanctions, bro? 🤔 In its press release announcing the sanctions, the Treasury Department said Tornado “has been used to launder … over $455M stolen by the Lazarus Group, a Democratic People’s Republic of Korea (DPRK) state-sponsored hacking group that was sanctioned by the U.S. in 2019, in the largest known virtual currency heist to date.” Also, it is estimated North Korea🇰🇵 used some $50M in stolen crypto to fund its nuclear weapons program. This is serious.
In other words, the accusation is not only about North Korea stealing crypto, but more importantly that North Korea has been stealing crypto for its weapons program, and Tornado Cash has played a key role in helping it transmit these funds in a way that could evade scrutiny. In TradFi that would be massive but…
The fury 😤 The reason this got so much anger from both traditional and crypto finance folks is that Tornado Cash is just a protocol. It has always been an open source to boot and built on a decentralized framework. More importantly, Tornado doesn’t exactly have a business to shut down.
But let’s leave this for now with Simon who summed it up elegantly:
The impact 📉 The chart below from blockchain analytics firm Nansen illustrates the impact of Tornado Cash sanctions brilliantly:
And it’s all about the power of the US Government (or the fragility of tech protocols?). Here’s the takeaway: