The Tornado Cash Saga

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Get caught up from the past week in 10 minutes or less:

• The Tornado Cash Saga🌪️

• Goerli is a PoS ⛓️

• Weekly Highlight 🌟

• Other stories from the week 📰

TORNADO CASH

On Monday, the US Treasury's Office of Foreign Asset Control (OFAC) imposed sanctions on popular cryptocurrency mixer Tornado Cash, a platform that allows users to conceal withdrawals so that the source of the funds is unknown, a technology enabled by zero-knowledge proofs.

OFAC claims that over $7 billion has been laundered through the platform since 2019 when in reality, that is the total amount of money sent through the platform since inception. Blockchain analytics firm Elliptic says that about $1.5B of that $7B can actually be attributed to known illicit actors. Included in the illicit actors are the North Korean hacker group Lazarus, responsible for several major hacks including the $600M Ronin Hack.

Since the sanctions, several resource for the site have been banned:

Public backlash to the sanctions includes concerns over user privacy and first amendment rights.

Ethereum founder, Vitalik Buterin, even admitted to using Tornado Cash to send funds to Ukraine without the Russian government knowing.

Now, as of this morning, a 29-year-old man has been arrested in Amsterdam for his involvement in the development of Tornado Cash. This is the first arrest made for the development of the platform, but now the precedent has been set.

ETH'S MAKE OR BREAK MOMENT

Next month is going to be huge for ETH, and this week has set the stage.

Goerli, the final testnet to transition to Proof-of-Stake has completed its merge, and now the stage is set for the actual Merge, expected to happen in mid-September. This is like acing the final practice test before going in for an important exam.

Post-merge, ETH is going to have what people are calling a "triple halvening". Montana Wong wrote this fantastic thread on what exactly the triple halvening is:

Basically, the supply of ETH will drastically decrease because of 3 major factors:

• Issuance: Post-Merge, the issuance rate of ETH will drastically reduce due to lower rewards for those maintaining the blockchain (Validators vs. Miners). In other words, new ETH will not be created at nearly the same rate, reducing the amount of new supply.

• Transaction Fees: This already happened but new updates to Ethereum burn a portion of every transaction fee, thus reducing the total amount of ETH in existence.

• Staking: All ETH that is currently staked on ETH2 will not be available for withdrawal immediately after the Merge, it could take many months. In fact, more ETH will probably continue to be locked in staking protocols after the Merge, reducing liquid supply.

HOT OFF THE PRESS

• Reddit is getting into web3 by creating a "Community Points" system where users can create custom tokens for their subreddits. Along with the new system, they have partnered with FTX and Arbitrum to allow users to pay gas fees.

• Curve Finance's website frontend was compromised earlier this week, leading users to a fake website where attackers created a pool to steal funds. All told, about $540k of USDC was stolen and Curve was able to remedy the situation quickly.

• After rejecting FTX's buyout offer, Voyager has reportedly received 88 buyout offers and has begun returning $270M in customer funds.

• To circumvent U.S. sanctions, Iran has placed its first import order of $10M using cryptocurrency.

• The IRS will nearly DOUBLE in size with $80B in new funding by 2031.

GLOSSARY

We're confused too. We're here to help decrypt the crazy world of crypto.

• zero-knowlege proofs: A zero-knowledge proof is a way of proving the validity of a statement without revealing the statement itself (ethereum.org)

• Proof-of-stake (PoS): a type of consensus mechanism used by blockchains to achieve distributed consensus (ethereum.org)

• Validators: Responsible for validating transactions on a blockchain

• Miners: the process of creating a block of transactions to be added to the Ethereum blockchain, usually performed by high-powered hardware.

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