Crypto: Tornado Cash reportedly tied to North Korean hackers Lazarus Group

Yahoo Finance crypto reporter David Hollerith details how Tornado Cash has been allegedly tied to North Korean hackers, and also previews Coinbase's upcoming earnings report.

Video Transcript

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- The US Treasury Department is barring Americans from using the decentralized crypto mixing service Tornado Cash. Well, Yahoo Finance's David Hollerith is here to tell us why. David?

DAVID HOLLERITH: Just to take a step back on cryptocurrency, on blockchains, cryptocurrencies have transactions that are publicly available. So mixing services are services that have come about as a way to hide or obscure transaction flows. Now, while operators don't necessarily do this as a way to market directly to money laundering, these kinds of software tools are quite good for money laundering. And that's sort of the situation with Tornado Cash, which has been added to the sanctions list.

Now, in particular, what has happened here is that Tornado Cash has become heavily used by the North Korean state-sponsored hacking group the Lazarus Group, which has been well known in the crypto space for being tied to or suspiciously in connection with most of the large crypto hacks that have happened this year. Honestly, it gets beyond the point of listing them all. There are so many. But in total, Lazarus Group has stolen over $1 billion. And in this last year, they've used Tornado Cash to a heavy degree.

Now, Tornado Cash has actually tried publicly to show that it was making compliance features to its platform. It markets itself as a tool for privacy. But that remains to be irrelevant here, as Lazarus Group has been shown to use the cryptocurrency funding to pay for North Korea's weapons program. So that connection makes Tornado Cash's tie to the relationship a bit of a national security issue.

- And David, also in this space, you're watching Coinbase ahead of earnings. What are the expectations there?

DAVID HOLLERITH: Yeah, I mean, second-quarter earnings are expected to be rough. But the question is how rough. The key that most analysts are looking at, the key metric is retail revenues.

So institutional revenues are-- institutional investors are a big part of Coinbase's sort of idea. I mean, we saw this BlackRock partnership that got a lot of attention last week. But the actual cut or the spread that Coinbase makes in terms of fees from institutional trading is much lower. So really what analysts want to see is how often retail investors are using the platform and how that's going to show up on their balance sheet.

Now, added to that, there's a general narrative framing here about Coinbase, which is that it's one of the largest cryptocurrency companies. It's one of the only ones that are publicly traded and probably touched the most, the most different areas in crypto. So they're a really big temperature gauge for understanding how the sector might be doing.

And they have an interesting position in a bear market, which is where cryptocurrencies are trading right now. So they can use their scale to get heavy in the merger acquisition space. But also analysts are going to want to see a lot more cost-cutting measures, so toeing that line between being a strong player that can get stronger in this period versus having to cut back costs is really going to be what they're going to need to do to hit the mark just right.

- Certainly a report that we are going to be watching very closely. David Hollerith, thanks so much.