Tornado Cash dev says 'sequel' to crypto mixer aims to be regulator-friendly

A erstwhile Tornado Cash developer claims to beryllium gathering a caller crypto mixing work that aims to lick a “critical flaw” of the sanctioned crypto mixer —which helium hopes volition person U.S. regulators to reconsider its presumption connected privateness mixers.

The codification of a caller Ethereum-based mixer, “Privacy Pools,” was launched connected GitHub connected Mar. 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 beryllium that they’re not associated with North Korea’s Lazarus Group oregon immoderate transgression endeavor for that matter.

— ameen.eth (@ameensol) March 4, 2023

With Privacy Pools, however, Soleimani explained that depositors and withdrawers could opt retired of an anonymity acceptable that contains an code associated with stolen oregon laundered funds.

This diagnostic of Privacy Pools is executed with zero-knowledge (ZK) proofs, meaning that the privacy of the idiosyncratic is preserved:

“Now, users person the enactment to assistance regulators isolate illicit funds, without revealing their full transaction past [...] With privateness pools, conscionable due to the fact that idiosyncratic deposits into the aforesaid astute declaration arsenic you, it doesn't mean they tin besides unit you into sharing an anonymity acceptable with them. It's your choice.”

Soleimani provided a objection of however Privacy Pools is used:

— ameen.eth (@ameensol) March 4, 2023

The developer hopes the solution volition empower “the assemblage to support against hackers abusing the anonymity sets of honorable users without requiring broad regularisation oregon sacrificing connected crypto ideals.”

While Privacy Pools is already unrecorded connected Optimism, Soleimani noted that the archetypal mentation of the privateness protocol is inactive successful its “experimental” signifier due to the fact that the codification isn’t implicit and has not been audited, but helium is “pretty adjacent to having this ready.”

To spot the protocol advancement further, Soleimani wants on-chain forensics platforms similar Chainlaysis and TRM Labs to behaviour tracebacks connected deposits truthful that users of the privateness instrumentality don’t person to manually make their ain subset exclusion lists.

In making the lawsuit for on-chain privateness protocols, Soleimani cited what helium described arsenic an “excellent” study by the Federal Reserve Bank of St. Louis successful Missouri which examined the trade-offs betwixt on-chain privateness and regulation:

“Their study proposes to execute effectual regularisation by having Tornado Cash users supply receipts to an intermediary, frankincense revealing their full transaction past to the intermediary, but inactive being capable to person privateness with respect to different nationalist blockchain users.”

The developer hopes this tin assistance “start a conversation” with U.S. regulators connected however on-chain privateness tin beryllium preserved whilst restricting transgression enactment done the usage of ZK proofs.

Related: On-chain privateness is cardinal to the wider wide adoption of crypto

Soleimani’s effort to make a crypto-friendly on-chain privateness solution comes aft the U.S. Office of Foreign Asset Control (OFAC) sanctioned ETH and USDC addresses linked to Tornado Cash connected Aug. 8 successful effect to respective alleged thefts by North Korea’s Lazarus Group, who were claimed to person routinely utilized the privateness mixer to sphere its anonymity.

Photograph of a #FreeAlex protest. Source: Ameen.eth Twitter

Shortly aft the authorisation connected Aug. 10, Alexey Pertsev, the creator of Tornado Cash was arrested by authorities successful the Netherlands and is presently facing a bid of wealth laundering charges. He remains down bars and his adjacent proceeding volition instrumentality spot successful precocious April.