DEFI

Tornado Mixer Revived! Launches Forked Version "Privacy Pools" to Solve Fraud and Money Laundering Issues

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Tornado Mixer Revived! Launches Forked Version "Privacy Pools" to Solve Fraud and Money Laundering Issues

The Office of Foreign Assets Control (OFAC) of the United States, citing the prevention of money laundering by criminal groups, added the privacy mixer protocol Tornado Cash to its sanctions list in August last year. One of its code contributors, Alexey Pertsev, was even arrested in the Netherlands and is to be detained until a hearing in April this year. This incident sparked backlash in the crypto community at the time, arguing that writing code should not be a crime, and that the decentralized world should ensure users' right to privacy.

Recently, in order to prevent Tornado Cash from fading away and to provide the crypto community with better privacy mixers, early contributor Ameen Soleimani took to Twitter to recount the development history of Tornado Cash and announced the launch of a forked version of the protocol called "Privacy Pools." Through zero-knowledge proof technology, this new version addresses concerns about potential malicious exploitation of the protocol.

What Issues Has Tornado Cash Encountered?

Ameen stated that the concept of Tornado Cash was initiated by a group of Ethereum enthusiasts who valued their privacy. After receiving the initial funding donation from MolochDAO, it continued to grow and gained popularity among many Ethereum users.

However, everything changed after the on-chain game Axie Infinity was hacked for over $600 million in March of last year.

According to the FBI investigation at the time, the hack was attributed to a North Korean hacker group. After obtaining illicit funds, the hackers used Tornado Cash for money laundering, which led to Tornado Cash being sanctioned by the Office of Foreign Assets Control (OFAC).

Since then, Tornado Cash has faced several restrictions, including:

  • Prohibition on use by U.S. citizens.
  • Users with funds in the protocol must submit a request to OFAC and obtain permission before withdrawing.
  • Only criminals, non-U.S. citizens, and authorized U.S. government officials are allowed to use it.
  • Advocating the use of Tornado Cash may be considered a conspiracy to violate international sanctions.

Related reading: Tornado.cash founder's GitHub account suspended! How do OFAC sanctions affect DeFi and miners?

However, according to Dune Analytics data, the OFAC sanctions have not caused Tornado Cash to disappear. Although the daily deposits and withdrawals have significantly decreased, the frontend has been disabled, but there is still a certain level of usage, with around 100 new users joining weekly.

Furthermore, Ameen mentioned a recent statement by Ethereum founder Vitalik Buterin, which undoubtedly injected confidence into the future of mixer services.

"Cryptocurrency mixers like Tornado Cash may become an indispensable part of public blockchain infrastructure." Vitalik Buterin stated.

Tornado's Comeback! Introduction to the Privacy Pools Protocol

In order to enable Tornado Cash to continue operating in a better way while avoiding regulatory issues, Ameen and another developer forked Tornado Cash based on the following three points and developed a new mixer protocol called Privacy Pools.

  • Tornado Cash's fatal flaw: Users cannot prove that their funds are unrelated to North Korea or other fraudulent organizations.
  • Vitalik's proposal: If users can prove they are not a subset of certain deposits.
  • Self-anonymity: Users can choose to exclude specific subsets of deposits without revealing the subset's identity when making withdrawals.

Currently, Privacy Pools can be tested on the Optimism Goerli testnet, and the deposit process is similar to Tornado Cash.

During withdrawals, clicking on the Subset Maker at the bottom left will display a filtering screen.

Once a specific subset is selected, they can be excluded during withdrawals.

Additionally, clicking on Generate Proof will create a zero-knowledge proof to demonstrate that users have not used blockchain addresses associated with criminals and do not reveal their identities.

"In my opinion, Privacy Pools surpass Tornado Cash in many aspects. When using it, even if others have used the same smart contract for deposits, it does not mean they can force you to share an anonymous subset with them. It all depends on you," Ameen stated.

However, Ameen also cautioned that Privacy Pools are still in the testing phase, the code has not undergone an audit, and users should be aware of the risks before trying it out.