A former Tornado Cash developer claims to be building a new crypto mixing service that aims to fix a “critical flaw” of the sanctioned crypto mixer – which he hopes will convince US regulators to reconsider its stance on privacy mixing .
The code of a new Ethereum-based mixer, “Privacy Pools”, was launched on GitHub on March 5 by its creator, Ameen Soleimani.
In a 22-part Twitter thread, Soleimani explained that the “critical flaw” with Tornado Cash is that users cannot prove they are not associated with North Korea’s Lazarus Group or any criminal enterprise.
1/ We have solved @tornadocash
v0 from https://t.co/Nt4b2Tgx1D is live @optimismFND
test the demo, but note:
– this is experimental code
– it has not been checked
– the trusted setup is not trustedread the full story anon https://t.co/9nAU3RrgpN
— ameen.eth (@ameensol) March 4, 2023
However, with Privacy Pools, Soleimani explained that depositors and lenders could opt out of an anonymity set containing an address associated with stolen or laundered money.
This feature of Privacy Pools is performed with zero-knowledge (ZK) proofs, which means user privacy is preserved:
“Now users have the option to assist regulators in isolating illicit funds without disclosing their full transaction history […] With privacy pools, just because someone deposits into the same smart contract as you doesn’t mean they can also force you to share an anonymity set with them. It is your choice.”
Soleimani gave a demonstration of how Privacy Pools are used:
13/ Our demo is live – https://t.co/Nt4b2Tgx1D
Users now have the option to assist regulators in isolating illicit funds without disclosing their full transaction history.
Let’s watch a short video of it in action: pic.twitter.com/An9lWx6jfr
— ameen.eth (@ameensol) March 4, 2023
The developer hopes the solution will “enable the community to defend against hackers who abuse honest users’ anonymity sets without the need for blanket regulation or compromising crypto ideals.”
While Privacy Pools is already live on Optimism, Soleimani noted that the first version of the privacy protocol is still in the “experimental” stage because the code isn’t complete and hasn’t been checked, but he’s “pretty close to having this ready.” “. .”
To further see the progress of the protocol, Soleimani wants on-chain forensics platforms such as Chainlaysis and TRM Labs to perform tracebacks on deposits so users of the privacy tool don’t have to manually create their own subset exclusion lists.
To advocate for on-chain privacy protocols, Soleimani cited what he described as an “excellent” report from the Federal Reserve Bank of St. Louis in Missouri that examined the trade-offs between on-chain privacy and regulation:
“Their report proposes to achieve effective regulation by having Tornado Cash users provide receipts to an intermediary, revealing their full transaction history to the intermediary, but still allowing privacy with respect to other public blockchain users.”
The developer hopes this can help “start a conversation” with US regulators about how to preserve on-chain privacy while limiting criminal activity through the use of ZK evidence.
Related: On-chain privacy is key to the wider mass adoption of crypto
Soleimani’s bid to create a crypto-friendly on-chain privacy solution comes after the US Office of Foreign Asset Control (OFAC) approved ETH and USDC addresses linked to Tornado Cash on August 8 in response to several alleged thefts by the North Korean Lazarus Group. who were alleged to have routinely used the privacy mixer to maintain anonymity.
Shortly after the sanction on August 10, Alexey Pertsev, the creator of Tornado Cash, was arrested by authorities in the Netherlands and is currently facing a series of money laundering charges. He remains behind bars and his next hearing will be at the end of April.