Tornado Cash: The end of sanctions, a decentralised future, and financial privacy

In a monumental shift in regulatory policy, the US government has reversed its decision to sanction Tornado Cash, the decentralised cryptocurrency mixer that has been a subject of intense debate since 2022.

As reported by CoinDesk, Tornado Cash has been “accused of helping North Korea’s Lazarus Group launder stolen funds from its various hacks and thefts, and the US Treasury Department’s Office of Foreign Asset Control sanctioned it – meaning no US person or anyone doing business with the US could engage with it financially – multiple times.”

Beyond this policy reversal, there lies more profound questions:

• What role does privacy have in the rapidly evolving world of digital currency?
• Can a decentralised, open-source tool like Tornado Cash continue to play a crucial role in the privacy and security of crypto users?
• Can it do so without undermining the legitimacy of the broader financial ecosystem?

In this article, we delve into what Tornado Cash is, why it was created, and why its removal from the US sanctions list could be a harbinger of change for the fintech industry as a whole.

What is Tornado Cash?

Tornado Cash is a decentralised, non-custodial cryptocurrency mixing service designed to enhance the privacy and anonymity of transactions on public blockchain networks like Ethereum.

By leveraging smart contracts, Tornado Cash enables users to blur the origin, destination, and amount of their cryptocurrency transactions, ensuring that the details of these transactions are not easily traceable.

As is now well known, cryptocurrency transactions are generally transparent and can be traced on public blockchains. For many, this transparency is seen as a double-edged sword: it offers security and traceability, but it also opens up users to potential surveillance and privacy violations.

Tornado Cash, through a method known as ‘coin mixing’ or ‘tumbling,’ seeks to solve this problem by breaking the link between the sender and receiver of funds.

When users deposit funds into Tornado Cash, the system pools the funds and then disburses them in a manner that makes it difficult, if not impossible, to trace the original transaction. In essence, the service ‘mixes’ the coins, ensuring that the funds are completely anonymised and not tied to any identifiable transaction history.

This type of privacy tool is essential for individuals seeking to maintain confidentiality in their financial dealings, whether they are concerned about personal security, data privacy, or autonomy in their financial activities.

Why is Tornado Cash in the news?

In August 2022, the US government argued that Tornado Cash’s mixing service made it easier for people to hide the origin of stolen or illicit funds, thereby facilitating activities like money laundering and ransomware attacks.

At the time, supporters argued that privacy is a fundamental right, and tools like Tornado Cash enable individuals to control their financial information in a world where surveillance is increasingly pervasive.

Furthermore, many pointed out that Tornado Cash itself was a neutral tool, much like a VPN or an encryption service - technology that could be used for both legitimate and illicit purposes. The sanctions, they also argued, risked overreach, stifling innovation and harming the privacy rights of innocent users.

Three years later, in March 2025, the US Treasury’s decision to reverse its sanctions on Tornado Cash represents a victory for privacy advocates and highlights the ongoing pushback against regulatory overreach.

By publicly recognising that privacy is not linked to illicit activity, this decision could reshape how this type of technologies are treated in the future. Privacy, particularly financial privacy, is becoming an increasingly important issue. As the global fintech landscape becomes more decentralised, open-source platforms like Tornado Cash will likely play a pivotal role in how users engage with their financial data.

Why a decentralised cryptocurrency mixer is needed

The public nature of blockchain transactions, while offering transparency and traceability, can also expose users to unwanted scrutiny, surveillance, and exploitation.

Historically, financial institutions are often required to protect customers' privacy to a certain extent, but the rise of digital currencies presents a new set of challenges. The need for privacy-enhancing tools in the crypto space is clear, especially in a world where regulators, hackers, and even malicious actors are increasingly aware of the power of financial data.

Tornado Cash’s open-source, decentralised nature is critical to ensuring that privacy is accessible to all, without relying on a single, centralised authority. In a world where users are more often than not entrusting centralised exchanges with their funds, a decentralised solution represents a far more trustworthy alternative for some.

The impact on the fintech industry

If the fintech industry begins to embrace privacy-enhancing technologies like Tornado Cash, the traditional fintech ecosystem could see innovation.

1. Privacy: Organisations may begin to adopt more privacy-friendly solutions, integrating blockchain and zero-knowledge proofs to offer privacy-preserving services to customers.
2. Decentralisation: Tornado Cash's role in this ecosystem could see further adoption of privacy-preserving solutions in DeFi protocols, where users are looking for ways to safeguard their financial information.
3. Regulation: The removal of sanctions on Tornado Cash could encourage regulators around the world to reassess their stance on privacy in the digital age. This could lead to more nuanced, balanced regulations that recognise privacy as a fundamental right, rather than a potential tool for illicit activity.
4. Empowerment: Tools like Tornado Cash could be a crucial step toward empowering users to regain control over their financial data.

As Tornado Cash continues to provide privacy-preserving services for users, its impact will be felt across the fintech industry. The broader adoption of decentralised, non-custodial platforms could transform the landscape of digital finance, promoting autonomy, privacy, and security for individuals in an increasingly interconnected world.