This week in crypto: powers that be blunder

The biggest story this week has to be the Tornado Cash sanctions.

Not really the sanctions themselves, but the revenge people took.

Tornado Cash is a coin mixer. You can use it to make your crypto transactions harder to trace.

Why would you want your crypto transactions to be harder to trace?

Because the thing about crypto is, once someone knows your wallet address, they can see every transaction you’ve ever made, and see a real-time view of your balance.

So if you buy anything from anyone with crypto, they will know exactly how much money you have, and they’ll likely be able to trace most of your other wallets, too.

Imagine if this happened with your bank account. You’d have to be extremely careful who you sent money to and received money from.

That’s why we have privacy coins, like Monero (see my Monero deep dive here).

But most cryptos aren’t anonymous, like Monero.

Which is why people use coin mixers. And Tornado Cash has grown to be one of the most popular.

Say you wanted to buy a pizza from someone with Ethereum, but you didn’t want them to know how much Ethereum you held in your wallet, you could use Tornado Cash to hide your wallet details from them.

Great.

But not everyone in this world is an upstanding citizen.

And coin mixers are also used by criminals to hide their hacked/extorted/stolen/illicitly obtained crypto.

And the US Treasury department doesn’t take too kindly to that sort of thing. So on the 8^th of August, it sanctioned Tornado Cash.

Now, Tornado cash is basically just a smart contract on the internet at this point. Its original developers handed ownership to the community back in May 2020. So the Treasury Department has sanctioned some lines of code.

But the sanctions also apply to anyone who interacts with that code. So if you use Tornado Cash, your wallet is instantly sanctioned, too.

At this point, someone hatched a dastardly plan…

One day after the U.S. Treasury sanctioned cryptocurrency mixer Tornado Cash for its alleged role in cryptocurrency money laundering operations, intervals of 0.1 Ether (ETH) transactions began materializing from the smart contract to prominent figures such as Coinbase CEO Brian Armstrong and American television host Jimmy Fallon. It is not possible to trace the source of the transactions per Tornado Cash design, and as a result, either one individual or multiple individuals or entities could be involved in the operation.

– Coin Telegraph.

More than 600 addresses received tainted Ethereum from the Tornado Cash smart contract. And it didn’t end there.

Many DeFi protocols had already updated their code so they instantly blacklisted any wallets that received this tainted Ethereum. Which meant people like Justin Sun (Tron’s creator), Jimmy Fallon, Shaquille O’Neal and others were banned from using major DeFi platforms like Aave.

I guess they were technically now sanctioned, too.

Coin Telegraph reports that, “Penalties for wilful noncompliance can range from fines of $50,000 to $10,000,000 and 10 to 30 years imprisonment.”

Eeeeeee.

I would imagine there are more than a few politicians among the 600 addresses that received that tainted Ethereum.

What a mess.

In other news…

Canada bans crypto investments over $30,000… unless you’re buying Bitcoin Cash

Here’s another strange one.

In an apparent attempt to protect “unsophisticated” investors, Canada has banned non-rich people investing more than $30,000 into crypto in any given year.

Well, that’s not exactly true. A number of Canadian provinces have, but the ban doesn’t apply to British Columbia, Alberta, Manitoba, or Quebec residents.

The weirdest thing about this new rule is that it doesn’t apply to Bitcoin, Ethereum, Litecoin or Bitcoin Cash.

Bitcoin and Ethereum… fair enough. They’re the only real “household names” in crypto.

But Litecoin and Bitcoin Cash are unadulterated shitcoins.

The creator of Litecoin sold his entire Litecoin stack way back in 2017, and Litecoin has been pretty much dead since.

And Bitcoin Cash has always been a pointless fork of Bitcoin that never gained any real traction, and then forked into another fork of bitcoin called Bitcoin Cash SV, which then went to war with the original (if you can call it original) Bitcoin Cash and resulted in both Bitcoin Cash creations falling into obscurity.

I wrote about this in more detail a few months ago.

Basically Litecoin and Bitcoin Cash are just pointless money-grab projects, which have never and will never amount to anything.

So exempting them from the $30,000 limit shows just how little understanding regulators have of the crypto industry.

What a joke.

Ethereum is way up in anticipation of next month’s merge (Ethereum 2.0 launch)

Ethereum has been doing well this month, ahead of the merge.

If you don’t know what the merge is, or why it’s important, you must not have been reading this newsletter very regularly. Here’s a primer on why it’s so important.

Basically, Ethereum is moving from Proof of Work (PoW) like bitcoin, to Proof of Stake (PoS) like most modern cryptos.

This will cut down its energy usage by 99.95% and also mean people can collect passive income for holding it.

And that passive income could be pretty high, with the latest estimates being somewhere between 7% and 12% per year.

Not only could this draw many more investors into Ethereum, but it will also be a huge revenue stream for flagging crypto exchanges like Coinbase, which lost $1.1 billion in the three months to July.

From Axios:

Coinbase Global can generate an estimated incremental revenue of $650 million annually via ether staking services, according to JPMorgan stock analyst Ken Worthington.

That's a 20% jump in annualized revenue for the largest U.S. crypto exchange. …

JPMorgan expects a 95% participation rate for Coinbase's retail customers in ether staking, largely as a result of the exchange's prior steps to "maximize the Ethereum staking revenue opportunity."

"The key here for retail is that Coinbase is opting people into staking," Worthington said in a report.

Ether staking is estimated to generate higher yields as a result of The Merge, according to some exchanges.

The higher the price of ether, the higher the yield (the reward offered to customers) and the more revenue an exchange with sizeable market share in ether will generate, JPMorgan noted.

The bigger the market share in ether trading, the bigger the staking business and the more competitive they can be with rates. (Watch a yield battle break out post-Merge.)

I haven’t read this yet, but it looks interesting

And to finish this week, I’m linking you to a longform article I haven’t read yet… but I think looks interesting.

It tells the story of the Three Arrows Capital debacle.

If you remember, Three Arrows Capital (3AC) was one of the biggest crypto venture capital firms in existence… until it suddenly collapsed.

I covered it at the time here.

But this article in New York Magazine goes into a lot more depth, and sounds super interesting.

Here’s a link: The Crypto Geniuses Who Vaporized a Trillion Dollars.

Okay, that’s all for this week.

Thanks for reading.

Harry

Full disclosure: At time of writing, I held the following cryptos: Ethereum, IOTA, Radix, Mina Protocol, Aleph Zero.

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