Tornado Cash Developer Aims to Create Regulator-Friendly Sequel to Crypto Mixer

Summary

• Tornado Cash is developing a new version of its privacy-focused crypto mixer.
• The new version will be designed to comply with regulations and be more transparent.
• The new version will also include a new feature that will allow users to prove that their funds are not associated with any illegal activities.
  

The U.S. Office of Foreign Asset Control (OFAC) recently sanctioned Ethereum (ETH) and USDC addresses linked to the crypto mixer, Tornado Cash, in response to alleged thefts by North Korea’s Lazarus Group. Now, a former Tornado Cash developer is attempting to create a new crypto mixing service that he hopes will convince U.S. regulators to reconsider their position on privacy mixers.

Ameen Soleimani, the creator of the new Ethereum-based mixer, “Privacy Pools,” launched the code on GitHub on Mar. 5. In a 22-part Twitter thread, Soleimani explained that the “critical flaw” with Tornado Cash is that users cannot prove that they’re not associated with a criminal enterprise stealing or laundering crypto funds.

With Privacy Pools, however, Soleimani explained that depositors and withdrawers could opt out of an anonymity set that contains an address associated with stolen or laundered funds. This feature of Privacy Pools is executed with zero-knowledge (ZK) proofs, meaning that the privacy of the user is preserved.

Soleimani provided a demonstration of how Privacy Pools is used and hopes the solution will empower “the community to defend against hackers abusing the anonymity sets of honest users without requiring blanket regulation or sacrificing on crypto ideals.”

The developer also cited an “excellent” report by the Federal Reserve Bank of St. Louis in Missouri which examined the trade-offs between on-chain privacy and regulation. He hopes this can help “start a conversation” with U.S. regulators on how on-chain privacy can be preserved whilst restricting criminal activity through the use of ZK proofs.

Alexey Pertsev, the creator of Tornado Cash, was arrested by authorities in the Netherlands shortly after the OFAC sanction and is currently facing a series of money laundering charges. He remains behind bars and his next hearing will take place in late April.

Soleimani’s attempt to create a crypto-friendly on-chain privacy solution comes as the crypto industry is increasingly pushing for greater privacy and security for its users. With Privacy Pools, Soleimani hopes to show that it is possible to have both privacy and regulation.