The creator of Tornado Cash claims that the “sequel” to the cryptocurrency mixer will focus on regulator friendliness.
Users of Tornado Cash cannot demonstrate that they are not connected to a criminal organisation that is stealing or laundering cryptocurrency funds, according to Soleimani, who called this a “major vulnerability” in the system.
In an effort to persuade US regulators to change their minds about privacy mixers, a former Tornado Cash engineer claims to be developing a new crypto mixing service that seeks to address a “critical weakness” of the approved crypto mixer.
Ameen Soleimani, the mixer’s developer, published the code for “Privacy Pools” on GitHub on March 5.
The “fundamental issue” with Tornado Cash, according to Soleimani, is that users cannot substantiate their lack of ties to the Lazarus Group in North Korea or any other criminal organisation, according to a 22-part Twitter thread he started.
Yet, Soleimani claims that using Privacy Pools, depositors and withdrawers have the option to reject an anonymity set that includes an address linked to money that has been stolen or laundered.
Zero-knowledge (ZK) proofs are used to implement this Privacy Pools feature, protecting the user’s privacy:
Users can now assist regulators in isolating illicit cash without disclosing all of their transaction history. With privacy pools, a person cannot compel you to share an anonymity set with them simply because they deposited money into the same smart contract as you. You have an option.
Soleimani presented a demonstration of how Privacy Pools is used:
Without requiring broad regulation or compromising on crypto values, the developer expects that the approach will enable “the community to guard against hackers misusing the anonymity sets of honest users.”
The first iteration of the privacy protocol is still in its “experimental” stage because the code is incomplete and hasn’t been inspected, but Soleimani said he is “very near to having this ready” even though Privacy Pools is now live on Optimistic.
Soleimani wants to see the protocol advance by allowing on-chain forensics tools like Chainlaysis and TRM Labs to perform tracebacks on deposits. This will spare users of the privacy tool from having to manually establish their own subset exclusion lists.
Soleimani used the Federal Reserve Bank of St. Louis’ “outstanding” analysis on the trade-offs between on-chain privacy and regulation to support his argument for on-chain privacy procedures.
Their report suggests achieving effective regulation by requiring Tornado Cash users to give receipts to a middleman, disclosing their whole transaction history to the middleman while maintaining their right to privacy in relation to other users of the public blockchain.
The creator believes that this will “start a debate” with American officials about how ZK proofs might be used to protect on-chain privacy while limiting criminal activities.
Soleimani’s attempt to create a crypto-friendly on-chain privacy solution comes after the U.S. Office of Foreign Asset Control (OFAC) sanctioned ETH and USDC addresses linked to Tornado Cash on Aug. 8 in response to several alleged thefts by North Korea’s Lazarus Group, who were claimed to have routinely used the privacy mixer to preserve its anonymity.
The founder of Tornado Cash, Alexey Pertsev, was detained by Dutch police shortly after the sanction was announced on August 10 and is currently facing many money laundering allegations. His next hearing is scheduled for late April, and he is still being held in custody.