To elaborate on this, tornado.cash actually gives you a cryptographic proof of the transaction, which allows you to reveal the origin of the funds to whoever you choose. So an obvious regulatory alternative to the nuclear option would be to require to reveal the origin to the authorities upon request.
On a more general note, this is one example of how engineering solves the OPs point of criticism, but it requires some research/education.
Ofc someone could fork tornado.cash and not hand out these cryptographic proofs, but I would assume that this clone would not find consensus/acceptance with an informed general public. An informed general public will also not accept prediction markets without a consensus model that prevents paid hits (all of the ones I know [augur, gnosis] include functionality to prevent evil stuff like this), just as an informed general public will not agree to trade on a system that gives carte blanche to criminals.
On a more general note, this is one example of how engineering solves the OPs point of criticism, but it requires some research/education.
Ofc someone could fork tornado.cash and not hand out these cryptographic proofs, but I would assume that this clone would not find consensus/acceptance with an informed general public. An informed general public will also not accept prediction markets without a consensus model that prevents paid hits (all of the ones I know [augur, gnosis] include functionality to prevent evil stuff like this), just as an informed general public will not agree to trade on a system that gives carte blanche to criminals.