In most sectors of the economy, bad actors are hard to track, catch, and punish in crypto that is not always the case. Crypto can differ from other sectors in the way it bands together and self-regulates. Within the crypto space, there is still a ton of work to do to iron out how this is done but compared to most developed industries crypto already is lightyears ahead.
In all fairness to other industries and sectors, they are at a disadvantage due to crypto and blockchain technology being for the most part decentralized. Taking a step back and looking at the whole field in front of you the area is extremely diverse and widespread. Even Bitcoin mining an area that one geographical region dominated has since become much more widespread across the globe. This structure and freedom for people to move among different protocols and blockchains is a remarkable thing to see.
However, recent issues have arisen with hacks, flash loan attacks, and the worry that international nefarious actors could use crypto to escape sanctions. When people have brought this topic up in the same breath they tend to mention different crypto mixers, the most popular, or at least the one with the name everyone knows, Tornado Cash has been under scrutiny for its prior use to "wash" funds. The way that this is being dealt with both by Tornado Cash and the whole crypto community is something that I think the government and regulators should pay attention to.
Tornado Cash is a protocol that was designed to help ensure an individual's privacy on the Ethereum blockchain. I see no right or wrong in using a protocol like this but at the same time if I was a criminal I would love the protocol since it is so good at doing what it does. This year in particular with the geopolitical situation in Europe, concerns about sanction evading, and hacks/protocols being breached mixers have remained in the headlines.
Unlike other mixers which have been able to be seized by authorities and shut down Tornado Cash is not on any given server since it is a series of smart contracts. On one hand, you never have to worry about this protocol being shut down but on the other hand, you do have to be warry about those who use it. It seems like some of the Tornado Cash team have gotten a little tired of the association with their mixer and hacked funds so they decided to get out ahead of this and do something about it.
Last Friday Tornado Cash announced it was using oracle contracts from Chainalysis to prevent sanctioned crypto wallets from being able to interact with their DApp. It is important to note this does not affect the underlying contracts at all rather Chainalysis screens the incoming and outgoing transactions to make sure they are not a sanctioned wallet. Instead of some battle with regulators, the development team took the quick and easy route and partnered with Chainalysis.
This is a simple easy to implement feature does a ton to boost Tornado Cash's status as an above-board protocol. If the team did nothing and rather just let whoever use the protocol like some crypto purists would love this would have led to intense oversite and investigations. By doing this regulators can back off as it makes laundering funds through the protocol harder. Overall steps like this are quick easy and something that the crypto community can do to protect the integrity of a variety of projects and ideas. Short of directly taking control of the wallets preventing the funds from being able to be spent or utilized in any way shape or form helps prevent these attacks in the future. Right now they can be extremely lucrative but this is able to be crushed if the funds are unable to be spent!