In the latest battle against crypto privacy, cryptocurrency exchange FTX blocks users who send money through an Aztec protocol, ZK Money, a layer 2 protocol, based on the Ethereum Blockchain. This protocol protects the tokens by using a ZKPC (zero knowledge proof cryptography) shield to protect the transaction. These transactions are not in public information.
Recently, FTX froze a user account that was sending coins to @aztecnetwork its zkmoney. According to FTX, Aztec Connect – Aztec network / zk money has been identified as a mixing service, which is a high-risk activity prohibited by FTX.
— Wu Blockchain (@WuBlockchain) 19 August 2022
According to many FTX users, the exchange warns against the use of Aztec Connect, Aztec Network and zk.money, saying they are “high risk” services. This move by FTX is now fueling the discussion of the larger crypto privacy debate.
First introduced in March 2021, Aztec’s zk.money protocol can be used to exchange funds privately using direct Ethereum transactions.
The platform achieves this by using a shield concept similar to a virtual private network. This network transfers the token using the ZKPC shield, which allows users to connect privately to decentralized finance (DeFi) services, such as Uniswap, Compound or Aave.
We are aware of reports that FTX is warning users not to interact with Aztec.
As a result, we would like to emphasize our current and ongoing risk mitigation framework:
1) Implement practical deterrents
2) Measure their effectivenessPrivacy is legitimate: pic.twitter.com/GfytZyOnoK
— Aztec (@aztecnetwork) 19 August 2022
The user must connect their wallet to ZK Money through Wallet Connect. Next, the user must choose an alias that will act as the username. In case the user forgets this username, the money will be lost forever. This protocol is based on layer 2, but users can still send ETH to layer 1.
“Since most blockchains are pseudo-anonymous, open and transparent public ledgers, anyone can run a blockchain analysis program on the transactions and see the balances people have. If their addresses touched a system that has information linking their identity, such as a crypto exchange that does KYC, or a merchant service that has delivered something to their name and house, then it’s pretty easy to link those addresses and future movements of coins, violating the privacy of those users,” said Rajagopal Menon, vice president at WazirX, a crypto exchange.
“By mixing coins, users can hide the ties between their crypto address and their real identities, and subsequent transactions. This will allow them to use crypto more privately. Mixers, such as Tornado Cash, recently rose to prominence because it is the ‘go to’ mixer for North Korean hackers to launder their ill-gotten wealth and circumvent sanctions, he adds.
On August 8, 2022, the US Treasury Department sanctioned Tornado Cash, a crypto mixer and the wallet addresses associated with the mixer on the grounds that North Korea Hackers – Lazarus Group – used the mixer to launder $7.8 million worth of crypto stolen in the August 2 2022 Nomad Heist.
Says Rahul Tyagi, Co-Founder, Safe Security: “The majority of crypto-mixers are used by cybercriminals, nation-states and organized terrorist organizations as a tool for money laundering. When it comes to anonymity, it is used by many individuals and organizations to support whistleblowers and other aid workers, where a person cannot take the risk of leaving traces back to him or her. But in most cases, the use of privacy is limited when we compare it to activities, such as money laundering and the like.”
Rajagopal adds, “Like all technologies, it can be used for good and ‘not so’ good purposes. Just as a TV channel can be used to spread hate and also to broadcast news; and mobile phones can be used by both ordinary people and terrorists, as is the case with cryptomixers.”
