Kronos Research, a quantitative trading firm, fell victim to a hacker in November 2023, resulting in a loss of $25 million. Initially, the company denied any funds being stolen, but later on, it was discovered that 12,800 ETH worth $25 million had indeed been taken. The stolen funds were transferred to six different cryptocurrency wallet addresses.
Despite Kronos Capital’s efforts to investigate the incident and halt its trading services, the stolen funds were never recovered. For six months, the funds remained dormant until May 7th, when one of the six wallets began transferring funds to Tornado Cash.
This transfer caught the attention of crypto analytics firm PeckShield, who flagged it as an attempt to launder the stolen funds. Tornado Cash is an open-source cryptocurrency tumbler, commonly used by hackers to obscure the source of their funds. By using this tool, the hacker was able to make the stolen Ethereum untraceable.
Crypto mixers like Tornado Cash have gained popularity in recent years, with over $77 million in assets processed through their contracts in October 2023. However, the majority of this usage has been associated with illicit activities. Hackers prefer to use mixers instead of centralized exchanges because once their addresses are identified, they are blocked by the exchanges. Tornado Cash provides a way for hackers to legitimize their funds by severing any connections to their illicit activities.
This widespread use of Tornado Cash to launder stolen funds has led to backlash from governments. In August 2022, the US Treasury imposed sanctions on Tornado Cash, charging its founders with money laundering and sanctions violations a year later. Despite this, there is a consensus within the crypto community against persecuting developers solely for creating privacy tools like Tornado Cash.
The adoption of privacy tools in the crypto community remains a topic of debate, but it is clear that the use of mixers like Tornado Cash for illicit purposes poses significant challenges for law enforcement agencies.