Ameen Soleimani, a former Tornado Cash developer, has created a new Ethereum-based mixing service called “Privacy Pools” that aims to address what he considers a “critical flaw” in the sanctioned crypto mixer.
Privacy Pools’ Solution to Tornado Cash’s Critical Flaw
According to Soleimani, Tornado Cash’s issue is that users cannot prove they are not associated with criminal enterprises that steal or launder crypto funds.
To address this flaw, Privacy Pools allows depositors and withdrawers to opt out of an anonymity set that contains an address associated with stolen or laundered funds using zero-knowledge (ZK) proofs. This preserves user privacy while allowing regulators to isolate illicit funds.
Privacy Pools: Progression and Hope for On-chain Privacy Protocols
Privacy Pools is still in the experimental phase, with the code incomplete and un-audited, but Soleimani is working to progress the protocol. He hopes that on-chain forensics platforms like Chainlaysis and TRM Labs will conduct tracebacks on deposits to avoid users manually creating their own exclusion lists. Soleimani cites an “excellent” report by the Federal Reserve Bank of St. Louis in Missouri that examines the trade-offs between on-chain privacy and regulation to make the case for on-chain privacy protocols.
Soleimani’s attempt to create a regulator-friendly on-chain privacy solution comes after the US Office of Foreign Asset Control sanctioned ETH and USDC addresses linked to Tornado Cash in response to alleged thefts by North Korea’s Lazarus Group, who allegedly used the privacy mixer to preserve anonymity. Shortly after the sanction, Tornado Cash creator Alexey Pertsev was arrested by authorities in the Netherlands and is currently facing money laundering charges.
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In conclusion, “Privacy Pools” is a new Ethereum-based mixer designed to address critical flaws in Tornado Cash, providing a regulator-friendly privacy solution using zero-knowledge proofs. With Privacy Pools, users can opt out of anonymity sets containing addresses associated with stolen or laundered funds, empowering them to defend against hackers without sacrificing privacy or requiring blanket regulation. This new solution aims to start a conversation with regulators on how on-chain privacy can be preserved while restricting criminal activity.