As crypto has grown up and risen in popularity over the past few years, it’s gaining much more attention from law enforcement, regulators, and other government officials. And three stories from this week make this point abundantly clear. Chainalysis has proven, once again, that crypto is not nearly anonymous as some would think. Coinbase is pushing back against the U.S. Treasury Department’s attack on Tornado Cash. The White House issued a report on the potential problems crypto mining could cause for the environment. With this attention from the federal government, it’s clear that it’s time for crypto to mature.
On Thursday, there was an announcement that the U.S. government was able to recoup $30 million worth of crypto assets. These were originally stolen by hackers in connection to the North Korean regime. The funds were steal from the popular non-fungible token (NFT) game, Axie Infinity. More specifically, the hack attacked a bridge between the blockchain network behind Axie Infinity, Ronin, and Ethereum.
The roughly $30 million worth of crypto that was recover by the U.S. government only accounts for around 10% of the total amount that was originally stolen in the hack. However, the seizure of these funds is still view as a win by law enforcement and blockchain analytics firm Chainalysis. This incident goes to show that crypto is not the anonymous haven for criminals that many critics believe it to be.
Although the existence of a bug in a smart contract allowed the theft to take place in the first place, the reality is that it’s still rather easy to track the movement of funds around the blockchain. In fact, this situation showed that it’s even possible for companies like Chainalysis to trace funds between different blockchains. Notably, the hackers associated with this attack even used the Ethereum-based privacy tool Tornado Cash and a Bitcoin mixer in an attempt to hide their movement of funds.
While it’s still possible for these sorts of attempts at crypto money laundering to be track today, one should note that the long term vision of this technology is for all financial activity to take place much more privately. For now, blockchain analytics firms are still able to assist law enforcement around the world when it comes to their criminal crypto investigations.
Coinbase has funded a lawsuit related to the recent sanctioning of Tornado Cash by the U.S. Treasury Department. The gist of the lawsuit is that the U.S. Treasury Department does not have the authority to regulate computer code.
As a reminder, Tornado Cash is simply a set of smart contracts that exist on the Ethereum blockchain. There is no one running a central server for the purposes of mixing Ethereum transactions, and the decentralized financial application is really nothing more than a technology. The case of Tornado Cash has reminded many technologists of the so-called Crypto Wars of the 1990s. The U.S. Government did not like it when strong cryptography became widely available to the general public, and lawmakers and regulators did not like the idea of this technology becoming available to the country’s adversaries.
After many attempts at clamping down on the proliferation of strong cryptography around the world, protestors eventually made the absurdity of attempting to clamp down on this technology clear when they printed the code related to PGP encryption on t-shirts. At that point, it became clear this is a free speech issue. However, the Tornado Cash is opening up this can of worms once again, and this lawsuit could have huge implications for the future of privacy on the internet as a whole, not just in crypto.
A new report from the White House Office of Science and Technology Policy has indicate that crypto mining based on proof-of-work (PoW), as is in use in Bitcoin, could be problematic in the fight against climate change. PoW mining is in use as the mechanism for maintaining consensus on a crypto network. There are large amounts of energy is in use to power hardware that runs operations 24/7 in an effort to be rewarded in cryptocurrency.
According to the White House report, crypto mining in USA uses as much energy as residential lighting. The report also estimates that crypto mining in the US accounts for roughly 0.25%. 0.25% of all global greenhouse gas emissions. This is not the first time PoW has come under fire from an environmental perspective. Tesla Elon Musk removed the ability to buy vehicles with Bitcoin. This is due to concerns around mining’s impact on the fight against climate change.
Ethereum’s move from PoW to proof-of-stake (PoS) say to resolve these climate-related concerns for that crypto network. However, there are concerns that PoS is not as secure and decentralized as PoW. This would make it a much more difficult proposition for Bitcoin.
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