An early developer of the U.S.-sanctioned Tornado Cash crypto mixing service has forked it to create Privacy Pools, which lets users blacklist shady wallets.
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Given that one of the primary developers of the U.S.-sanctioned Tornado Cash mixing service is being held without bail in The Netherlands while he awaits trial on money laundering charges, you might think that others who worked on the project would be keeping a low profile.
You would be wrong.
Early Tornado Cash architect Ameen Soleimani has unveiled what he referred to as "a 'let's start a conversation' kind of launch" of a new, improved and — he hopes — legal version of North Korea's favorite crypto mixer.
Solemani's new project, Privacy Pools, is an attempt to "figure out how to operate within the regulatory paradigm" while still providing American crypto users with financial privacy, he told Wired. Its transaction capacities will be sharply limited.
Mixing services like Tornado Cash use a variety of techniques to hide the origins of cryptocurrency. One main technique is mixing a large batch of tokens owned by many people together and distributing them randomly to the participants.
They have grown more popular as blockchain intelligence firms and law enforcement agents have grown more adept at tracing tokens along a blockchain until they can identify the owner — when a transaction is sent to a wallet attached to a cryptocurrency exchange that collect anti-money-laundering (AML) data, for example.
What is It Good for?
Law enforcement and financial regulators say they are largely tools for tax evaders, drug dealers, terrorists and sanctioned entities like the North Korean government, whose hacker groups stole an estimated $1.7 billion in crypto in 2022.
The biggest of those hacks was the Lazarus Group's theft of $620 million from the Ronin Network cross-chain payments bridge. It is run by the developers of top blockchain-based game Axie Infinity.
About $455 million of that, plus $60 million of the $100 million Lazarus Group stole from Horizon's Harmony Bridge, are believed to have been run through Tornado Cash.
In August, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) placed Tornado Cash under sanctions, making it illegal for Americans to do business with it in any way. Crypto industry groups are suing to overturn that action, calling it an overreach to sanction decentralized software rather than a person or group.
Zero Know-It-Alls
Soleimani's project is a fork of Tornado Cash that uses zero-knowledge proofs (ZKP).
ZKPs are a type of cryptography growing in popularity in blockchain and crypto circles due to its ability to let one party in a transaction prove something to be true while revealing as little data about it as possible to the other party.
Rather than identify the owner of crypto mixed through Privacy Pools, ZKPs would allow someone to prove that the assets do not come from a blacklisted source, such as a sanctioned digital wallet.
Users would be able to publicly prove "who they are not" using lists of known criminal and sanctioned wallets provided by third parties, Soleimani added.
Whether regulators will buy that is another story, and even Soleimani admits that could be a long shot.
Which is important as the ultimate goal is to allow users privacy in their transactions without joining Tornado Cash developer Alexey Pertsev in a Dutch jail cell.
