Ep. 74: Feelings Check in: A briefing on the Tornado Cash money laundering case; Personal feelings about looking for focus as the business grows

[00:00] I am a financial crimes expert. [00:03] now. I cannot wait to hear what's going on. What's going on? I have been reading some takes. It gets deep to the core of American values. [00:18] freedom of speech. [00:20] Freedom of code. [00:21] LFG. LFG. Welcome to the feelings check-in a feelings first look at the news of the week takes no one asked for on topics everyone's talking about I'm Natasha Hoskins I'm Dina Burke and this is boys club wait is it just boys club it's just boys club the boys club podcast no [00:41] Just boys club. [00:42] - This is the feelings check in. We're gonna talk about a story. I'm gonna unpack a story for Dina today and then talk about some of our personal feelings about our life and our work. - So that's gonna be the format of the show. [00:55] unpacking a news story, talking about our personal feelings, [00:59] We're really excited about [01:01] event that we're doing at SmartCon with Chainlink in a couple weeks. I'm so excited. Barthelona. Beginning of October. [01:08] We're flying to Barcelona and we're going to be hanging out at SmartCon with the Chainlink folks. [01:14] And we're going to be doing a little evening gathering. We'll be doing a fireside chat and having some cool tapas. [01:22] Hm. [01:23] i love that everything about this is me just weighing in with a spanish accent

[01:30] Bye. [01:31] It's going to be so fun. So if you're going to SmartCon, definitely come and hang out with us. If you live in Barcelona, definitely come and hang out with us. We'll put the invite in the show notes. Okay. I'm going to unpack a story for you today about tornado cash. [01:44] It is... [01:46] a hot topic this week before we get started please like and subscribe to this podcast [01:52] It helps a lot. And it's how we can continue to do this work is if people are listening. So please do that. Send it to one friend if you're feeling generous and stick around. Hey, Natasha, if someone wants to get into crypto or is looking for a better way to trade, where should they go? Oh, Dina, I'm so glad you asked. The place to be is Kraken. It's more than a crypto platform. Kraken is your bridge to the new world of finance. [02:22] with a redesigned trading interface that's so easy to use. From degen to day trader, first timer to full timer, make your trades in just a few clicks. Go to kraken.com backslash boys club, sign up in just a few minutes, and you can even get started with as little as $10. We love you, Kraken. [02:39] Talk to me. I'm just going to put this out there and we can find a way to put it. This is my understanding of what's happening. [02:44] Let's just get that in there. Let's make sure to edit that in. So... [02:50] What happened this week is two of the founders of Tornado Cash were charged... [02:54] One of them is in prison. One of them is at large. [02:57] That's the story. [02:58] Now we're going to zoom back.

[03:00] to setting some context for what is Tornado Cash? What is it used for to help set the stage? So Tornado Cash is an open source, non-custodial, fully decentralized cryptocurrency Tumblr on Ethereum. [03:15] Tumblr? Hardly know her. Okay. Essentially what that means is that it is a smart contract mixer that enables users to deposit crypto with one address and withdraw it into another wallet without being able to trace that. [03:31] So you're tracking? Totally. You want to know what my mental visual is? A rock tumbler? [03:36] Oh, rocked up from the 90s. Me too. I'm like, cute. They come out all clean and shiny. So cute. So cute. Okay. So it allows users to obscure the movements of cryptocurrencies on blockchain. [03:49] which arguably... [03:52] The whole point of a blockchain is that you cannot obscure... [03:55] Movement of funds. [03:57] But, [03:58] That's for another podcast. Meaning keep it private. Keep it private. The whole point is trustless, transparent, transparent. [04:05] Traceable. [04:06] Money. [04:07] That's one thing I'd like to set aside for a moment. [04:10] Let's set that aside for a moment. Let's put a pin in that. I, I, [04:13] want to just make sure for folks who are not in crypto and who might be listening to this podcast for the listener who's like, I don't know what we're talking about. I'm already lost. [04:23] Hang tight. We're going to make it a little bit clearer. [04:27] so that there's some... [04:29] ways that people are using tornado cash.

[04:31] So I'm going to talk about the problematic ways that got them in prison and some more wholesome case studies of how people use tornado cash. So some would say, including the U.S. courts and the U.S. Treasury Department, that tornado cash is used to launder money. [04:47] Some examples: $100 million Harmony protocol hack, [04:51] They take that, they put it through tornado cache, it spit out somewhere else, it can no longer be traced, so you can't find the hacker. [04:56] I'm not sure. [04:57] Another example that is central to this case is [05:01] money laundering for the organization, the Lazarus Group, which is a known North Korean state-sponsored hacker group. [05:09] So those are two examples of how hackers or criminals work. [05:15] can utilize tornado cash to do illicit activity on the blockchain, hack a smart contract, [05:22] "Steal. [05:23] on the blockchain, take it, put it into Tornado Cash, it's spit out on the other end, and you then can't find these individuals who did this. [05:32] They've erased their tracks. They've erased their tracks. A more wholesome take is a take on Twitter by a man named Jeff Coleman at Techno. [05:44] Crypto? I don't know this man. He might be crazy. Who's to say? [05:48] He's on Farcaster. So he said, wanting to donate to Ukraine is a great example of a valid need for financial privacy. Even if the government where you lived is in full support, you might not want the Russian government to have full details of your action. On this note, curious if there is any documented examples of TC, Tornado Cash, having been used for this. Obviously, self-identifying sort of defeats the point, but EG groups or guides recommending people to do so?

[06:16] Vitalik, our main man, responds and says, I'll out myself as someone who used TC to donate to this exact cause. [06:25] positive view of what tornado cash can do if you want to donate to ukraine relief and you don't want the russian government to know that utilizing something like this allows you to obfuscate that blockchain activity so that you can actually make donations that can't be traced back to you clear [06:43] Fascinating. Yeah. Okay. [06:45] personally we're going right into the take the u.s government says that tornado cash has helped to [06:54] Launder over $7 billion. I don't think that's all going to Ukraine relief. So just to put a little note on... [07:03] Aside on that. Okay, so what happened this week? Two founders of Tornado Cash, Roman Storm and Roman Semenoff, have been charged with laundering more than $1 billion in criminal proceeds and sanction violations. Storm was arrested Wednesday in Washington state, but Semenoff remains at large. According to the Office of Foreign Assets Control, Tornado Cash has been used to launder money for many cyber criminals in high-profile hacks. [07:33] in these charges is $455 million stolen by the Lazarus Group. Again, this is a North Korean sponsored hacker group. They were charged by federal prosecutors this week. The two developers were the two founders, the hacker group. Yes, there's a third founder who is also been charged in the Netherlands. It's sort of unclear to me why that is separated. He might be like a

[07:57] Dutch citizen or something, but he's charged separately in the Netherlands for similar stuff. Basically, there's two sides, obviously, of the story. [08:07] Damien Williams, who is the U.S. attorney on this case, said, while publicly claiming to offer a technically sophisticated privacy service, Storm and Sabinoff, in fact, knew that they were helping hackers and fraudsters conceal the fruits of their crimes. So the crux of this case is really relying on the fact and. [08:25] assuming they're going to have evidence in order to proceed with these charges, that these two individuals knew that their smart contract and knew that tornado cash were being used for illicit and criminal activities to launder money. And that's really the core premise of being able to be charged is [08:41] being able to say they can claim all day long that this is open source technology, that this is fully decentralized Tumblr, that they are not responsible for the activities of what happens on it. But if there's... [08:53] evidence to the fact that they knew that this activity was happening, it sort of breaks down [08:58] their... [08:59] argument. And if they're personally benefiting, which is a big part as well of the charges against them, [09:06] that they have financially benefited from all this activity, criminal activity that's happening. Another piece of evidence for the case. [09:12] Their lawyers are saying, we are incredibly disappointed that the prosecutors choose to charge Mr. Storm because he helped to develop software. And they did so based on novel legal theory with dangerous implications for all software developers. [09:27] That feels true.

[09:28] Those are two... [09:29] Takes. Those are two sides. I think we might be on different sides of this one. We definitely are. And I like don't even want to talk about it because... [09:37] I'm so annoyed with the discourse around this and I'm going to get added all over the place. And it's a very complicated case. There's also like another separate case that's happening. So, [09:50] Tornado Cash was sanctioned in August of last year. [09:53] Then users of Tornado Cash sued the Office of Foreign Asset Control saying this was wrongly put on the sanctions list. And that's a whole other case that's happening. Separate. Separate. So it's very... [10:06] complicated and there's quite a bit going on and they were also, you know, [10:11] The founders were charged with... [10:13] sanctions violations because the Lazarus group is on the sanctions list. [10:21] So it's not only utilizing Tornado Cash, it's the fact that who's utilizing Tornado Cash is a sanctioned organization as well. [10:27] Did they know that? [10:29] the sanctioned organization was using [10:31] that's that's what they're claiming [10:33] That they did know. That they knew. [10:34] So here are the takes. [10:36] There's a few takes on the internet. One takes is devs arrested... [10:41] They just wrote the code free speech. There's someone in our discord. I won't dox them. [10:46] But a smart take from our Discord is saying, TornadoCache is immutable and autonomous code. Yes, devs wrote and deployed it, but it's non-upgradable and there are no admin keys that can upgrade or alter the software. Thus, while you can say that humans wrote and deployed it, it cannot be said that humans quote-unquote operate it. So the ruling and arrest for writing code is somewhat akin to writing code, putting it on a floppy disk, dropping the disk on the street in Alita, and then being arrested because a criminal picked up the code and did something with it. Terrible precedent for DeFi.

[11:16] what comes to mind for me is okay, [11:18] AOL in the 90s is sending out all these CDs to get people online and then a whole bunch of [11:25] weird and illegal shit happens on the internet every single day, we're not holding AOL responsible for [11:30] that activity. So the US attorney would claim two things. [11:34] The crux of this case. One is that they knew nefarious activities was happening with their protocol and they did nothing about it. [11:41] And two, that they didn't just deploy code and put it out into the world, but they were operating a business. [11:48] that allowed for illegal activity to happen. [11:51] And that's where it breaks down, that it's just like, I'm just an engineer. I just put this out there and then people used it for all these bad things on the Internet. [11:58] they would make a claim. And I'm not a lawyer. And I do not work at the U.S. Attorney's Office. But... [12:04] They have enough evidence that they were arrested to claim that they were knowingly operating [12:09] an illegal person. [12:11] organization. [12:12] or knowingly facilitating illegal activity on their platform. I'm rewatching The Sopranos right now. Oh, nice. And they're the waste management [12:21] company that's letting Tony into their office to do his bidding. Exactly. That's a big thing. Another one is like smart contracts live on that smart contracts can then be taken and they're decentralized and people can spawn new programs with similar functionalities that have nothing to do with them. And... [12:40] they're being held responsible for those types of activities. [12:43] I think the devil is always in the details with these types of cases where it's like you can make all these claims and a lot of them can be true. But you're looking at a very, very specific set of activities that happened and drawing conclusions on whether these two people or three people, the founders, are going to be a good thing.

[12:58] were knowingly participating and benefiting from that type of activity, which I think is very different than just saying they wrote code, they deployed it, like how can you hold them responsible? You can hold people responsible for the activities and you should. And that's my opinion. [13:10] Nice. Cool. I could be totally wrong, but I do think it's irresponsible to just assume that these departments don't have some supporting evidence. [13:19] that these people... [13:21] had some knowledge... [13:22] of hundreds of millions of dollars throwing through tornado cash. And like, let's be real. Everybody in the world knows that tornado cash is used to launder money. [13:28] Everybody. [13:29] Everybody in this industry knows. [13:31] That's what people use when they do something... [13:33] elicit and they hack. [13:35] Something. [13:35] where they go is tornado cash. And so I think it's good to have some scrutiny around that. [13:42] There's another take in the Discord that I... [13:45] really like and I think could provide some useful balance here. [13:49] They say, I generally think it's dangerous to hold developers liable for open source, non-custodial code. It will stifle innovation undoubtedly. However, I think the nuance here is as a creator of a project, you probably think of your most prevalent use case and user persona. Even if you didn't anticipate it initially, but over time it became illegal, you probably should report that or take some action. Similar to Ross Ulrich at Silk Road. I don't think he intended it to be a drug exchange, but unfortunately it did. Either way, I don't think incarceration is the answer. Nice. I kind of feel like that. [14:16] tracks for my personal feelings on this, which is [14:20] Maybe they set out to do one thing. [14:22] it undoubtedly turned into this other thing. [14:25] and [14:26] there probably should have been some action taken and

[14:30] Yet. [14:31] Jail feels... [14:34] like a lot. I don't know what that solves for. Totally. I think there's another piece of evidence that I read that was like the way that they marketed and operated the business. And there's a lot of evidence to how they... [14:46] marketed tornado cash, giving people suggestions of how to set up a VPN, how to make sure your IP address isn't traceable. And I get that there's like privacy maxis who are like, yeah, all of this is just a way to help people who don't want their activities online to be traceable to be able to utilize this software online. [15:06] most efficiently. I'm not a data privacy person. I'm like, I have nothing to hide. I think that this is where you and to a certain degree me rub up against the very libertarian values that you can find in crypto circles where it's like, [15:22] freedom. [15:24] Yeah. Maximalists. And... [15:28] I think that [15:29] that [15:30] This is very much where this... [15:32] whole industry was born from. Yeah. That. [15:34] current runs through [15:36] all of this stuff. [15:37] But I don't know that I'm fully on board with all of that. And I know that you aren't. And I think that this is the type of story where that gets revealed. It does get revealed. Everybody's take in the Discord is very measured. And I really appreciate it. And people who have weighed in, I really respect. [15:54] Also... [15:56] bristle at the idea that there are human rights violations that are happening.

[16:00] in north korea and this tool [16:04] is... [16:05] assisting [16:07] in [16:08] that happening. And [16:10] it's hard for it to feel gray. [16:13] when... [16:14] you're confronted with like, wow, this is the group. [16:17] that is benefiting from the use of this technology. And, [16:22] I don't have enough personal conviction around data privacy and around being able to make transactions anonymously. [16:30] for that to feel worth it in the world. I think the argument that there is a need for people to be able to innovate and not [16:38] have a fear that they will be arrested for putting things out into the world that have problematic ends that they didn't foresee is a great argument and I can get behind that. But what comes up for me is I'm just like this just weighing the cost of that feels tough to do. [16:52] So, yeah. As an aside, you want to know one thing that I really love about our community and by extension or discord? I would love to hear. [16:58] that they're [17:00] is respectful disagreement. I think that that actually shows the strength and [17:06] anti-fragility of a community. [17:09] is [17:10] Is it able to disagree without it splintering and shattering into a million pieces? And I think that our community can. Totally. I think it's really cool, too. OK. OK. Kraken is a crypto OG. They have more than 10 million clients around the world that trust them with their crypto needs. They're one of the largest crypto platforms out there with some of the highest security standards in the industry. So you can rest easy that your funds and your privacy are safe for the keeping.

[17:40] support team is available 24-7 every day of the year. This is a true story. I've actually hit them up a few times with very dumb questions about our account and they were so nice and so patient. It just takes a few minutes to get started today at kraken.com backslash boys club. [17:55] Personal feelings? Yeah, let's share some personal feelings. Do you want to hear some lighter feelings that I'm having? [18:01] Okay. Not related to work necessarily. Turned 31 this week. Happy birthday. Thank you. Happy birthday publicly. I have said it privately, but let's go on the record. Happy birthday. [18:13] And... [18:15] I, it's weird. My mom called me and we were chatting and I was like 31. Can you believe it? And she was like, no, I'm like, I'm like a woman, like a grown person. Um, I have some hyperpigmentation on my face that I'm thinking a lot about. [18:29] A lot about, I think I'm going to do a laser facial while I'm in Nashville. Going to Nashville next week. [18:34] I think I'm gonna do a full [18:36] light laser facial. [18:37] I've heard it's very painful. Have you done it? [18:39] I have done laser facials. I used to really like them. And then I did them at my [18:44] medical aesthetic place in Kingston, New York. And then shout out. Shout out. [18:49] Big time shout out to that place. Hudson Valley Medical Aesthetics. They're incredible. But then ever since I left [18:56] Kingston I haven't been able to find the same like every time I try and get a light facial they're like want to do something else with me okay and so well I have a place in Nashville my sister sent to me she was like hey what do you want for your birthday and I was like I want to get a super painful facial

[19:12] She was like, great. Here's my spot. Anastasia aesthetics. Also shout out. I'll send you a link. [19:18] Anyway, I have had a light facial. It is painful, but it's there's [19:22] I mean, maybe the technology has advanced and it's more painful now, but... [19:26] It's survivable. More painful, more effective, potentially. Anyway, so that's what I'm thinking about. [19:33] Yeah. Thinking about my light facial and thinking about being 31. And honestly, I love my birthday. So it's not that loaded. It's not that serious, but it's there. [19:43] I'm just like, oh, that's there. It does. [19:46] bleed into the work because I, [19:51] and one of those people that a large part of my personality is my job. [19:54] And so it's just like, I want to be successful. I want to make good money. I want to be set up for my future. I want to be building wealth. [20:03] And all of those things... [20:05] orbit around our jobs. [20:09] Yeah. [20:10] You know what I mean? [20:11] I do. Yeah, I do. [20:12] I... [20:13] I see your feelings. Do you want me to react to them or do you want me to just hold them as they are? I could do either. I think that related to the actual tangible day-to-day of our work, I think one of the things that I know we've been feeling and trying to figure out is... [20:30] We have... [20:32] Finally, [20:33] after two years of doing this work, [20:36] started to have a business here. [20:38] What is [20:39] A delight.

[20:43] And part of that... [20:45] is us getting really... [20:47] much clearer. [20:48] about what we're doing. [20:51] the priorities for this next year. [20:53] how we're [20:54] having inflection points that build our media business, how we're experimenting into [20:59] physical products and larger scale events and a lot of the stuff that actually we haven't really even shared here before. [21:06] in the full... [21:07] sense of what it is. But I think what we're faced with is that [21:13] there's still a lot of opportunity that doesn't clearly fit into the remit of our priorities. [21:19] And... [21:20] It's tempting for two people like us who... [21:23] never want to close doors and love [21:26] exploring different opportunities and also having a deep belief that like [21:30] lightning strikes in surprising places. [21:33] and inspiration finds you working. And so it's really hard to close doors when [21:40] They come... [21:41] through. [21:41] Yeah, I think that checks out. I think also [21:44] we okay so we're we're in a position now [21:47] really where we're just starting to make money from. [21:52] Boys Club, we're just starting to be able to pay ourselves... [21:56] and [21:57] we're just getting, like you said, an understanding of like what the business is, what we can sell, how we can sell it, and like how it all sort of ladders up to a bigger vision. [22:07] And I think we have gotten to this place [22:10] After two years. [22:12] of experimenting

[22:15] trying different things, throwing a bunch of stuff at the wall. And all we have right now is muscle memory of that sort of like zero to one phase where you're trying a bunch of things and seeing what works. And it's, [22:29] So now we do have a little bit more of a crisp vision of what we need to be focused on and what we need to do next in order to, [22:38] grow and this thing into whatever the next version of it is. But [22:42] We also just like have a lot of recent [22:45] see bias around [22:48] okay, what we've done in the past few years was like chaotic, but part of it has worked. And so I think it's really hard for us to switch that off now and to go into a new phase of this business, which is... [23:00] we're not throwing everything at the wall right now. We can't. We need to narrow the scope. [23:05] and [23:06] have more focus and it's just, it's hard to, [23:10] to do that when [23:12] That's what's gotten us to this point. Right. [23:14] In the business. [23:15] So, but I do think that there's a discipline that we need to start bringing to the decisions that we're making around where we're spending our time and what projects we're taking on and. [23:26] That's hard when there's so many fun things to work on. And also things that could potentially be meaningful to the bottom line of this business too. Like there's a lot of work that... [23:33] we're kind of looking at right now that's like, I don't know, that could be like a big business, but... [23:38] is that [23:39] the business that we want to or have bandwidth to build right now. [23:43] Maybe not. Mm-hmm.

[23:45] And so... [23:47] That's tough. It just takes some focus and some discipline that... [23:50] That's a new feeling for us to be [23:52] exercising. Yeah. I think also the feeling in it is a sense of a little bit of fear in, are these the right decisions to be making? Like, are these inherently we're making a bet with our time and attention? Yeah. [24:04] And... [24:05] believe that there will be outsides return on the things that we're working on. [24:11] And... [24:12] it makes you really examine and question the decisions that you're making and [24:17] I think some of that questioning is like super healthy and better for the business. And then I think there's some of it that is... [24:23] unproductive to spend time [24:25] like, [24:27] mulling it over. [24:28] Because it's a distraction to being committed to an idea. [24:33] And I think... [24:35] one of the things that's been really fun is... [24:38] We are... [24:41] Beholden to no one. [24:44] besides our partners who we love and who we want to do right by, but we're not beholden to investors. We're not beholden to a board. [24:54] We're beholden to our community and wanting to provide value to them. But... [24:57] At the end of the day, [25:00] You and I are just making decisions. [25:02] And hoping that they're the right cause. [25:04] And yeah. [25:06] So yeah, there's a pressure to that that I think is I'm present too. [25:11] so anyway that's what's going on another thing that's going on is that i'm listening to the costco episode oh my god you are so into acquired i'm so into it and i gotta say i'm not

[25:22] I have never shopped at a Costco. [25:24] but [25:26] You've never been to a Costco? [25:28] I've never been to a Costco. Whoa. [25:31] It's kind of amazing. Yeah. [25:32] Yeah. Well, now, after listening to the first... [25:37] 45 minutes of this episode, I'm like, all in. Did you know that Kirkland signature, [25:43] Yeah. Which is the Costco brand. I don't know what this is, but Kirkland's signature. [25:48] does more... [25:50] and [25:51] in sales... [25:53] than the entirety of the Nike business. [25:56] Wow. Are you serious? I'm serious. [25:59] You always hit me with these truths. I mean, it's insane, the scale of Costco. How do you think these guys are getting this information? They read all the books on... [26:11] Okay. [26:11] a given company and then deeply research reading the deeply researched yeah okay and then i think they like talk to some folks and like i know in the nike episode they talked to like a nike historian or something and they're like they're very much [26:24] doing their due diligence and it shows it does [26:28] It does show. [26:29] It does show when you retell it to me. [26:34] There are sort of like two unhinged things that... [26:37] we've recently done that I'm like a little bit tempted to talk about on this podcast. [26:41] But I don't know if it's-- Which is what? [26:44] One recently was done by a person on our team. I'm not going to name names, but when we were... [26:51] in California altogether

[26:53] We were... [26:56] just perusing the internet of... [26:58] Men. Adjacent. [27:01] to boys club oh i don't want to tell this story i don't want to tell this story at all [27:07] *crying* [27:08] No. Anyway, manic behavior on the social channels. [27:11] truly okay okay bye [27:17] Dina, where are we going to be in September? We are going to be at Permissionless in Austin, Texas. Permissionless too. It's happening. And we're curating the culture track for the conference. So if you're into the stuff we talk about here, you should come and have a good time with us. So email your boss, tell them that you need to go and buy your ticket now. They will never be as cheap as they are today. And we also have a promo code in our discord for Boys Club members. Come hang in Austin. [27:46] Friends. [27:47] This is where we make an ask. We're in our call to action era. It's CTA times. Rate and review this podcast. Subscribe to our newsletter. And if you're feeling extra generous, [28:00] Send it to one friend. [28:02] Thank you for listening. We love you. Bye.