When the US government announced sanctions against Tornado Cash last August, the warning seemed to be aimed at all crypto mixers.
Alleging that Tornado Cash had been used to launder $7 billion in digital currency—including half a billion dollars tied to Lazarus, a hacking group sponsored by North Korea—the US Treasury’s Office of Foreign Assets Control said any service that “indiscriminately facilitates anonymous transactions” represents a “threat to US national security.”
That definition fits most mixers, which are typically used to obscure the originators and recipients of crypto transactions by scrambling together funds from a large number of people. By the time depositors withdraw their funds 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’s developers, Alexey Pertsev, is being held in custody in the Netherlands on suspected “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’s 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 “affront to justice”).
Soleimani announced the sequel to Tornado Cash on Twitter on February 26, revealing only its name and backing from MolochDAO, a decentralized autonomous organization (DAO) that hands out grants to developers building apps for the Ethereum blockchain, and which Soleimani is closely involved with.
At ETH Denver on March 4, he plans to unveil a rudimentary demo, with limits placed 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’ kind of launch,” Soleimani says, “it’s a ‘let’s start a conversation’ kind of launch.”
That conversation, he says, is about whether it’s technically possible to satisfy authorities’ need to trace the passage of stolen cryptocurrency while still affording crypto users the financial privacy they demand.
Privacy Pool will use a cryptography technology called a “zero-knowledge proof,” by which users are able to demonstrate that their crypto withdrawals are unconnected to deposits made by known criminal wallets.
The basic premise, Soleimani says, is that users can “withdraw 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 approached by an anonymous developer known as Twister, who is working on implementation of the technology. Soleimani says he doesn’t know much about Twister but isn’t concerned about working with an unknown quantity because the service is just a pilot at the moment.
Andrew Thurman, head of content at blockchain analytics company Nansen, says these kinds of proofs are “poised to play a key role” in affording anonymity to crypto users. The technology is gaining traction in crypto circles as developers explore different applications; Ethereum side-chain Polygon is making particularly heavy use of it, and Buterin has been vocal about its potential.
