A former Tornado Cash developer claims to be building a new crypto mixing service aimed at addressing the sanctioned crypto mixer’s “critical flaw” — which he hopes will convince US regulators to reconsider its approach to privacy mixers position.
On March 5, its creator, Ameen Soleimani, released the code for a new Ethereum-based mixer called a “privacy pool” on GitHub. In a 22-part Twitter thread, Soleimani explained that Tornado Cash's "key flaw" is that users cannot prove they have nothing to do with North Korea's Lazarus Group or any criminal enterprise.
However, Soleimani said that with privacy pools, depositors and withdrawals can opt out of an anonymity set containing addresses associated with stolen or laundered funds. This functionality of the privacy pool is performed through zero-knowledge (ZK) proofs, which means that the user's privacy is protected: “Users now have the option to help regulators quarantine illicit funds without revealing their entire transaction history You share an anonymity set with them. It’s your choice.”
The developers hope that the solution will enable “the community to defend itself against hackers abusing honest users’ anonymity sets without full regulation or sacrificing cryptographic philosophy.” While the privacy pool is already running on Optimism, Soleimani noted that the first version of the privacy protocol is still "experimental" because the code is incomplete and unaudited, but he is "very close to being ready"
To further understand the progress of the protocol, Soleimani hopes that on-chain forensics platforms like Chainlaysis and TRM Labs will trace deposits so that users of privacy tools don’t have to manually create their own subset exclusion lists.
In his defense of on-chain privacy protocols, Soleimani cited what he called an “excellent” report from the Federal Reserve Bank of St. Louis, Missouri, which examined the trade-offs between on-chain privacy and regulation: “Their report recommends effective regulation by having Tornado Cash users provide receipts to intermediaries, thereby disclosing their entire transaction history to intermediaries, but still being able to protect the privacy of other public blockchain users.” The developers hope this can help “start a conversation” with U.S. regulators about how to protect on-chain privacy while limiting criminal activity through the use of ZK proofs.
After the U.S. Office of Foreign Assets Control (OFAC) approved ETH and USDC addresses associated with Tornado Cash on Aug. 8 in response to several thefts from North Korea’s Lazarus Group, Soleimani sought to create a crypto-friendly on-chain privacy solution schemes, they allegedly often use privacy mixers to maintain their anonymity. Shortly after the Aug. 10 sanctions, Tornado Cash founder Alexey Pertsev was arrested by Dutch authorities and is now facing a string of money laundering charges. He remains behind bars and his next hearing is due in late April.
