New crypto mix promises to be tornado cash without the crime

Alleging that Tornado Cash had been used to launder $7 billion in digital currency — including half a billion dollars linked to Lazarus, a North Korean-sponsored hacking group — the U.S. Treasury Department’s Office of Foreign Assets Control said that any service that ” facilitates anonymous transactions arbitrarily”. represents a “threat to US national security”.

This definition fits most mixers, which are usually used to hide the originators and recipients of crypto transactions by pooling funds from a large number of people. When depositors withdraw their money to separate addresses, it is no longer clear whose crypto is whose.

Under the sanctions – which have been challenged in court – US residents are no longer legally allowed to use Tornado Cash. Separately, one of the service developers, Alexey Pertsev, is in custody in the Netherlands on suspicion of “involvement in concealing criminal financial flows and facilitating money laundering”.

But one of the early architects of the Tornado Cash project, Ameen Soleimani, has announced that he is launching a successor to the sanctioned mixer, Privacy Pools, which he says will still allow users to make private, largely untraceable transactions, while discouraging money laundering and other. illegal activities.

“If Americans want privacy, we have to figure out how to operate within the regulatory paradigm,” says Soleimani (who describes Pertsev’s imprisonment as an “insult to justice”).

Soleimani announced the sequel to Tornado Cash on Twitter on February 26, revealing only the name and support of MolochDAO, a decentralized autonomous organization (DAO) that distributes grants to developers building apps for the Ethereum blockchain, with which Soleimani is closely involved.

At ETH Denver on March 4, he plans to unveil a rudimentary demo, with limits on the amount of funds that can pass through the service because the code has not yet been properly audited for bugs. “It’s not a ‘put all your money in’ type of launch,” says Soleimani, “it’s a ‘let’s start a conversation’ type of launch.”

That conversation, he says, is about whether it is technically possible to satisfy the government’s need to track the passage of stolen cryptocurrency while still giving crypto users the financial privacy they demand.

Privacy Pool will use a cryptography technology called “zero-knowledge proof”, where users can demonstrate that their crypto withdrawals are not linked to deposits made by known criminal wallets.

The basic premise, Soleimani says, is that users can “remove without revealing who they are by publicly proving who they are not.”

However, Soleimani admits that the exact mechanics of the zero-knowledge proof are a mystery even to him. He decided to use it after being contacted by an anonymous developer known as Twister, which works on implementing the technology. Soleimani says he doesn’t know much about Twister, but isn’t worried about working with an unknown number because the service is just a pilot at the moment.

Andrew Thurman, chief content officer at blockchain analytics company Nansen, says this type of proof is “poised to play a key role” in providing anonymity to crypto users. The technology is gaining traction in crypto circles as developers explore various applications; Ethereum sidechain Polygon uses it particularly extensively, and Buterin has been vocal about its potential.

Under Soleimani’s system, individual users will be responsible for marking which other depositors they do not wish to be associated with. In practice, he imagines that would mean using blacklists drawn up by companies like Nansen, which monitor public blockchains for crime.

In theory, such a design would also limit the amount of funds linked to criminal activity passing through the mixer, he argues, “because everyone else who uses it will have the ability to isolate [criminal addresses],” reduces the size of the pool in which bad actors can hide.

The system would not mean that criminals could not operate on the mixer, just that they would not have access to full liquidity.

Soleimani says an alternative system, in which an administrator maintains a block list to ban bad actors from the platform entirely, would be prohibitively expensive because adding addresses to a blockchain host list costs money each time, and criminals often jump between wallets. It will also raise ethical questions about whether a person should make an assessment of who is allowed to use the service.

“I don’t think I should be responsible for deciding who the good and bad people are for everyone — and neither should anyone else,” Soleimani says. “This system is different because it allows individuals to choose who they associate with or not.”

Soleimani says Privacy Pools’ clients are likely to be people who want to conduct transactions privately — those who want to donate to political causes anonymously or hide the size of their crypto-denominated salary, for example.

Even before the technical details were released, the project began receiving messages of support from the cypherpunk community, which advocates the use of cryptography to safeguard privacy.

“Cypherpunks like privacy, institutions like privacy, casual investors like privacy,” says Thurman. – It will be warmly welcomed.

“I’m sure it’s going to be good, whatever he puts out there,” says Greg Di Prisco, former head of business development at MakerDAO, another prominent Ethereum-based DAO. “I don’t think the average user understands how bad the world will look without transactional privacy.”

As for whether US regulators are likely to be receptive to the idea, however, Soleimani says he is “not confident at all” – a sentiment shared in crypto circles.

The debate surrounding cryptomixers highlights the “philosophical divide” between evangelists and regulators, according to cryptoanalyst Noelle Acheson, over whether financial privacy is a right. She predicts that regulators in the US are likely to treat any kind of mixer with suspicion because of the possibility of misappropriation, even if only a small percentage of users are bad actors.

But the emergence of a successor to Tornado Cash, Acheson says, points to the difficulty regulators face in preventing similar tools from entering the market, which risks becoming an endless game of mule.

Despite the headwinds, Soleimani says he hopes the project will represent a rare convergence of the interests of regulators and crypto evangelists — and will act as something of a “peace offering.” (OFAC did not respond to a request for comment.)

“My goal is to have a privacy tool that I can use as a US citizen. This has always been my goal—it was the goal when we created Tornado Cash in the first place,” he says. “My friends and I think privacy is normal. One day we will you too do it.”