Breaking down Ethereum’s evolution and its impact on crypto markets Was this newsletter forwarded to you?Sign up here. |
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Welcome to Valid Points! Hey, Daniel Kuhn here, subbing in for Sam this week while he's away. I'm a CoinDesk features reporter and assistant opinion editor for CoinDesk Layer 2. I also writes a daily news rundown and twice weekly column for The Node newsletter, which you can sign up here for if you aren't already subscribed. For this week's Valid Points, let's take a look at the recently sanctioned Ethereum mixer, Tornado Cash, and explore what's stopping developers from redeploying it on a new, non-sanctioned address. |
Cloning Tornado Cash Would Be Easy, But Risky |
What’s stopping anyone from redeploying the Tornado Cash contract on a new, non-sanctioned address? Technically nothing. But there are a slew of reasons – legal and technical – why it may not be in an individual’s best interest to challenge the will of the U.S. government. On Monday, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) took the unprecedented step of sanctioning the popular cryptocurrency transaction anonymizer. All U.S. “persons” are thus barred from interacting with this smart contract, and could face the type of penalties usually reserved for terrorist financiers or mob bosses if not in compliance.
Already there have been attempts to thwart what some see as an overzealous attempt to rein in the crypto industry. A pseudonymous crypto user is sending small ETH payments from a Tornado Cash wallet to high-profile crypto holders, making them inadvertently interact with a sanctioned entity (because crypto transactions cannot be refused) in what’s called a “dust attack.”
Industry think tank Coin Center, among others, is questioning the constitutionality of an outright ban of an open-source project. Members of the Tornado Cash Telegram channel are sharing advice on how to access the application through identity-protecting servers including the Brave and Tor browsers. |
Others have noted that because Tornado Cash’s code is open source, and because Ethereum is a permissionless blockchain, it would be trivially easy to simply reconstruct the service. If you know how to copy and paste and know how to deploy a smart contract, you could be done by dinner. There are many justifiable reasons someone would want to interact with Tornado, which until Monday was a legal and globally-accessible service. Ethereum, like many blockchains, makes transactions visible by default – meaning that anyone who would want to shield their financial history from employers, lovers or the world would have cause to “mix” their funds. The U.S. government claims the platform was used to launder more than $7 billion worth of crypto since it launched in 2019. But analytics company Elliptic has only identified $1.5 billion worth of crypto filtered through Tornado tied to illicit acts like ransomware or hacks. Read the full story here. |
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The following is an overview of network activity on the Ethereum 2.0 Beacon Chain over the past week. For more information about the metrics featured in this section, check out our 101 explainer on Eth 2.0 metrics. |
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Disclaimer: All profits made from CoinDesk’s Eth 2.0 staking venture will be donated to a charity of the company’s choosing once transfers are enabled on the network. |
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Ian and Dylan Macalinao faked a DeFi ecosystem, temporarily inflating Solana’s TVL during the bull run last year. - WHY IT MATTERS: Ian Macalinao, the chief architect of Solana stablecoin exchange Saber, created a web of interlocking decentralized finance (DeFi) protocols that projected billions of dollars of double-counted value onto the Saber ecosystem. “I devised a scheme to maximize Solana’s TVL: I would build protocols that stack on top of each other, such that a dollar could be counted several times,” Ian wrote in a never-published blog post unearthed by CoinDesk. By Ian’s own count, the protocols he built comprised $7.5 billion of Solana’s $10.5 billion TVL at its peak. Read more here.
Vitalik Buterin played down the impact of any hard forks after the network’s Merge in September, while Tron founder Justin Sun has been an active supporter of a hard fork. - WHY IT MATTERS: Prominent Chinese miners like Chandler Guo have proposed a hard fork, so even as Ethereum undergoes the Merge and becomes validated by stakers, miners could continue to support a newly separated PoW version of the chain. Buterin said, “I don’t expect Ethereum to really be significantly harmed by another fork.” Poloniex, a crypto exchange backed by Sun, has offered support for the Ethereum fork, currently called EthereumPOW. Read more here.
Reddit partnered with FTX Pay to allow users to pay gas fees on transactions using community points. - WHY IT MATTERS: Reddit’s integration of FTX Pay enables users to purchase ether (ETH) directly on the app, “which then can be used to pay blockchain network fees for their Community Points transactions on-chain,” said the press release. Read more here.
The Reserve Bank of Australia started a pilot to explore the use cases of a central bank digital currency (CBDC). - WHY IT MATTERS: Australia’s central bank is researching the feasibility and possible technical design of a CBDC. “A question that has received less attention to date, especially in countries like Australia that already have relatively modern and well-functioning payment and settlement systems, is the use cases for a CBDC and the potential economic benefits of introducing one,” the central bank said. According to the announcement on Aug. 9, the project will take roughly a year to complete. Read more here.
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Valid Points incorporates information and data about CoinDesk’s own Eth 2.0 validator. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post. You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is: 0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb. Search for it on any Eth 2.0 block explorer site! |
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